Reforming the Corporate Tax Code
February 5, 2015
America's statutory corporate tax rate is the highest in the developed world, and the tax code in general is not competitive internationally. Why? The Tax Foundation has a new report by Jack Mintz and Duanjie Chen of the University of Calgary detailing exactly what American corporations are paying in taxes compared to the rest of the world. They identify three major problems with the corporate tax code in America:
- The tax burden is high. High taxes create disincentives for domestic investment, and money that would be invested in American companies instead goes to other nations.
- Companies operating overseas are incentivized to keep profits abroad rather than investing them in the United States where the tax rate is higher.
- Different business activities in the United States are addressed differently in the tax code, meaning that some activities have tax advantages compared to others. This reduces productivity and efficiency, because it leads businesses to make decisions based on the tax system, not based on economic value.
American corporations face the second highest marginal effective tax rate among countries in the Organization for Economic Cooperation and Development, just behind France. While other nations have reduced their corporate income tax rates over the last decade (among the OECD, corporate tax rates have dropped by 2.8 percentage points from 2005 to 2014), the United States has dropped its rate just 0.2 percent.
Source: Jack Mintz and Duanjie Chen, "U.S. Corporate Taxation: Prime for Reform," Tax Foundation, February 4, 2015.
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