Government Bytes


New Coalition Hopes to Turn Agreement Into Action On Corporate Tax Reform

by Brandon Greife / /

Agreement is hard to come by in Washington, but on at least one issue the parties seem to be in agreement – the need to lower America’s corporate tax rate.

President Obama has repeatedly stated support for the idea. “If there are ideas whereby we can lower the corporate tax rates in a way that does not massively add to our deficit,” said Obama in 2008, “ . . . that is something that we would be very interested in.” Referring to such reforms as a “win-win for everybody.”  

Likewise, the House-passed Republican budget (which withered in the Senate) would have cut the corporate tax rate to 25 percent, down from today’s 35 percent.

Despite the widespread agreement, corporate tax reform has been unable to find a footing in Washington. “Tax reform has been like the weather, everyone talks about it but no one does anything about,” opined Pat Heck, a former top aide to the Senate Finance Committee.

In an attempt to get the ball rolling on something everyone believes to be a good idea, a broad coalition of major businesses has launched an effort to lower the U.S.’s sky-high corporate tax rate. The coalition, Reducing America’s Taxes Equitably, known by its acronym RATE, hopes to make Washington see the powerful economic effects that a reduced rate would bring.

NTU has long argued that America’s current tax system exerts a tremendous drag on the economy, piling heavy rates and double taxation onto the backs of our would-be job creators. A recent report by top accounting firm Ernst and Young found that the overall effective tax rate on corporate earnings that are retained and reinvested in the firm is 42.1 percent – one of the highest among developed nations. In fact, according to “Paying Taxes 2011,” a study jointly published by the accounting firm PricewaterhouseCoopers and the World Bank Group, the United States now ranks an embarrassing 124th out of 183 countries worldwide in total tax rate faced by a typical corporation.”

And while others are taking steps to make their corporate rate more competitive in an increasingly globalized economy, America has done little. Since the Tax Reform Act of 1986 lowered the top federal rate from 46 percent to 34 percent (subsequently raised to 35 percent in 1993) the corporate income tax rate has remained unchanged. On the other hand, 30 out of the 34 nations in the Organization for Economic Cooperation and Development, have lowered their statutory corporate rates since 2000.

Moreover, the United Kingdom is scheduled to lower their rate and the Japanese had proposed a rate decrease until the tsunami disrupted their economic plans.

Given these trends it is clear that America is quickly being left behind. Our high corporate rate is deterring businesses from locating their production facilities on our shores, creating disincentives for continued investment, and hurting workers through reducing employment opportunities and lowering wages.

"For the sake of our national economic and strategic future, it’s vital that we create a more simplified corporate tax system that is fair, transparent, and most of all, pro-growth,” said RATE Co-Chair James Pinkerton. NTU could not agree more.

For more on the RATE Coalition we urge you to check out their website by clicking HERE.