US corporate tax rates are way out of step with our major economic competitors and cause companies to move overseas. Last year Ways and Means Chairman Charles Rangel proposed cutting the federal corporate tax rate from 35 percent to 30.5 percent. While a 5 percentage point cut may sound significant, it may not be sufficient to meaningfully improve the competitiveness of the United States.
Currently, the average combined federal and state corporate tax rate in the U.S. is 39.3 percent, second among OECD countries to Japan’s combined rate of 39.5 percent. Lowering the federal rate to 30.5 percent would only lower the U.S.’s ranking to fifth highest among industrialized countries.
More recently, other members of Congress—including Sen. John McCain and Congressman Eric Cantor—have released proposals to cut the corporate rate even deeper to 25 percent. While this lower rate would improve the U.S.’s international ranking and competitiveness, that improvement would be mitigated by the high corporate tax rates imposed by many states. Also in just the past two months, at least six countries have announced plans to cut their corporate tax rates: Canada, Hong Kong, Korea, South Africa, Spain and Taiwan.
Assuming that no state cuts its business taxes in the next year, the U.S. federal rate would have to be cut to 20 percent in order to bring the combined federal-state rate down to the middle of the OECD pack. But Washington does not bear the entire blame for America’s eroding tax competitiveness, nor does it shoulder the entire responsibility for fixing it. State officials also have to be cognizant of the fact that they are not only competing against each other for investment and jobs, but against the rest of the world. The emerging low-tax countries in Europe and Asia benefit from the U.S. remaining a high-tax country.
The key to improving America’s business tax competitiveness is a partnership between federal and state lawmakers to work toward the common goal of lowering the overall business tax burden in the U.S. Otherwise, the U.S. will continue to fall behind in the global tax race simply by standing still.
US corporate tax rates are way out of step with our major economic competitors and cause companies to move overseas. Last year Ways and Means Chairman Charles Rangel proposed cutting the federal corporate tax rate from 35 percent to 30.5 percent. While a 5 percentage point cut may sound significant, it may not be sufficient to meaningfully improve the competitiveness of the United States.
