Corporate Tax Competitiveness Rankings for 2012

September 26, 2012

Despite anti-corporate sentiment running high in many parts of the world, few countries have increased corporate tax rates. On the contrary, many countries, including the United States, are considering proposals that would decrease the corporate tax rate. Both presidential candidates have expressed a willingness to bring down taxes on corporations, say Duanjie Chen and Jack Mintz of the University of Calgary's School of Public Policy.

  • The combined federal-state tax rate on corporations is 40 percent in the United States.
  • In 2012, the tax rate on new corporate investments is 35.6 percent in the United States.
  • However, the average tax rate of 34 other Organization for Economic Cooperation and Development countries is 19.4 percent.
  • The average corporate tax rate of 90 other countries is 18.2 percent.

The presidential race has highlighted the importance of changing the corporate tax rate, as many companies have considered moving overseas in order to take advantage of lower corporate tax rates. President Obama has proposed reducing the rate from 35 percent to 28 percent while broadening the tax base. Mitt Romney has said he would cut the tax rate to 25 percent.

Policymakers in the United States should look to Canada's corporate tax reforms, which have brought more investment and spurred economic growth.

  • The federal statutory tax rate was cut from 29.12 percent to 15 percent, while cutting the provincial rate from 13.3 percent to 11.1 percent.
  • In addition, most federal and provincial were eliminated, and sales taxes on capital goods were removed.
  • Moreover, Canada adopted more neutral capital cost allowances.
  • Finally, the country scaled back special preferences under the corporate income tax.

Opponents argue that lowering the tax rate would also reduce the government's revenue. However, in Canada the governments lost hardly any revenue. Studies show that reducing corporate taxes boost domestic and foreign investments. Furthermore, lowering the tax rate to the world's average rate has the benefit of keeping the tax base and reducing profit shifting by multinational corporations.

In addition, studies show that combining cuts with a broadening of the base can prevent revenues from shrinking.

Source: Duanjie Chen and Jack Mintz, "Corporate Tax Competitiveness Rankings for 2012," Cato Institute, September 2012.

 

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