U.S. Losing Out to Lower Taxes in Sweden
July 26, 2002
As globalization continues to merge separate national economies into a single world economy, industrial countries have pursued tax reforms to attract investment. Despite having several advantages in tax reform, the United States has fallen behind on corporate tax reform. According to a new Cato Institute study, the United States must cut its corporate tax rate in order to remain competitive in the international market.
According to the accounting firm KPMG, the United States has the fourth highest corporate income tax rate in the 30-nation Organization for Economic Cooperation and Development (OECD):
- The combined federal and average state rate of 40 percent is almost 9 percentage points higher than the average OECD top corporate rate of 31.4 percent.
- Only Belgium, Italy and Japan have higher rates.
- Even socialistic Sweden has a top corporate tax rate of just 28 percent.
Moreover, corporate income tax rates are dropping in other countries, increasing the United States' disadvantage:
- The average OECD corporate tax rate has fallen 6 percentage points in just the past six years.
- The average corporate tax rate in the European Union is now 32.5 percent, down from 38.2 percent in 1996.
Unlike the United States, Europeans and others are realizing that high corporate rates discourage mobile capital income and create an unfavorable business climate. As a result, the United States has become one of the least attractive industrialized countries in which to locate the headquarters of a multinational corporation. In fact, the Treasury Department has found a "marked increase" in the number of U.S. firms relocating abroad.
Source: Chris Edwards and Veronique de Rugy, "International Tax Competition: A 21st Century Restraint on Government." Policy Analysis No. 431, April 12, 2002, Cato Institute.
Browse more articles on International Issues