Our friends at the Cato Institute recently put out a very interesting policy paper – completed by Canadian tax scholars Duanjie Chen and Jack Mintz – on the effective corporate tax rates in 80 nations in 2009. The authors found the U.S. rate to be 35%, which is significantly higher than the 80-nation average of 18.2%. We can blame our federal statutory rate of 35% and state-level corporate incomes tax rates for this embarrassing statistic.
What baffles me is that most major nations have achieved corporate tax reform in the past decade – including China! Chen and Mintz point out that 27 of 30 nations in the Organization for Economic Cooperation and Development (OECD) have cut general corporate income tax rates, and 50 other nations in this study have lowered their corporate tax rates to an average of 7%. The U.S., on the other hand, has done nothing to achieve reform and continues to maintain an outdated approach with high rates and narrow tax breaks. This severely deters investment into our nation, thereby hurting our economy and putting even more jobs at risk. Why wouldn't a company choose countries with lower-tax jurisdictions? It makes sense!
According to Chen and Mintz, "The combined federal-state corporate income tax rate should be cut to 25% or less to increase capital investment and attract more reported profits to the U.S." They also believe the government would lose little if any revenue from such an adjustment. One thing is for sure: we need immediate tax relief for American families and businesses if we want to jump-start our economy. Check out Rep. Jim Jordan's Economic Freedom Act, which would do just that by reducing the corporate tax rate to 12.5%, among many other things. We sent a letter of support for the bill on April 21 and look forward to watching its progress in the House.