NCPA - National Center for Policy Analysis


August 18, 2008

Currently, America has the second highest corporate tax rate in the world at 39.3 percent.  And for the first time, the U.S. statutory rate is 50 percent higher than the average of our international competitors, continuing a long term trend as the rest of the world reduces corporate tax rates, says the Wall Street Journal.

The problem: many U.S. politicians are still living in their own populist alternative universe, claiming that big corporations need to pay their fair share.  This idea comes from a Government Accountability Office (GAO) study that found that 28 percent of large U.S. corporations paid no income tax in 2005.

In truth:

  • The Tax Foundation found that among those companies, 85 percent of them also made no profits that year.
  • The average European nation has tax rates on corporate income 10 percentage points lower than the United States.
  • Those countries also, on average, raise 50 percent more as a share of gross domestic product in corporate taxes; Ireland, with its 12.5 percent rate captures 3.4 percent of GDP, while the U.S, with its 39.3 percent rate only captures 2.5 percent of GDP.

To correct this revenue dearth, Barack Obama and John McCain have each proposed tax reforms, says the Journal:

  • Obama wants to tax foreign profits when they are earned, which raises more revenue in the short term, but would also accelerate the trend of U.S. companies moving entirely offshore.
  • McCain proposes cutting the 35 percent federal corporate tax rate to 25 percent, which is a good start; however, it would leave the United States with a rate nearly five percentage points about the global average.

With corporate tax rates falling around the world, abolishing the U.S. corporate income tax should be on the table, concludes the Journal.   Every month without tax reform, America is a relatively less attractive place to do business.

Source: Editorial, "America the Uncompetitive," Wall Street Journal, August 15, 2008.

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