I honestly don’t understand why anyone in the United States supports a U. S. corporate tax with nearly 40% nominal rates on businesses, the highest in the OECD. It only produces about 11% of federal revenues and has a vast array of undesireable consequences from the deadweight loss of the billions spent by companies in avoiding paying taxes to inversions to, as James Freeman points out at the Wall Street Journal, lower wages for workers to inversions to U. S. companies holding vast amounts of cash earned overseas away from our shores so it doesn’t incur U. S. taxes. It fosters big companies that can afford tax avoidance over small ones. It’s perverse.
Far from being a radical notion proposing that the U. S. nominal business income tax rate be lowered to 15% would just bring the U. S. more closely into line with other OECD countries. We wouldn’t become a tax haven. We’d just be more like the other kids.
Rather than arguing about the merits of lowering the rate (which are obvious), we should be working out ways and means for making up for the loss of revenue. The most obvious way would be simply to issue ourselves the credit. Don’t pay interest on it. Just “print” it. I don’t believe that such a small percentage of GDP would result in a run on the dollar.
If that offends you and you insist on a balanced budget, how about a millionaire’s tax? A surtax on personal incomes of over a million bucks would probably do it and it’s what Warren Buffett, Bill Gates, and Mark Zuckerberg have been demanding. Give the lady what she wants, as the saying goes.
How about we reduce it to zero and then tax capital gains as regular income.
I agree that would be better but baby steps. At this point we can’t even talk a lot of Democrats into reducing the nominal rate without their launching into a class conflict monologue.
“President Trump, as part of his “America First” program, has proposed lowering the U.S. corporate tax rate to 15% and to close a myriad of loopholes in an effort to simplify the tax code, and encourage our nation’s largest businesses to bring production back home. The proposal represents a tangible shift in the relationship between Washington and big business. In 2014, President Obama’s Treasury Department introduced new measures to crack down on corporate tax inversions, a strategy companies utilized to exploit gaping tax differentials between the United States and other countries. Burger King’s acquisition of Canada’s Tim Horton’s, a coffee and doughnut chain, for example, was motivated in large part by Canada’s more hospitable tax environment.
Back in 2000, America’s 40% corporate tax rate, which included state and local taxes, was competitive with those of our trading partners. Now it’s not. While the U.S. tax rate remains unchanged, Germany, Japan and the U.K. have all reduced their rates; in some cases, substantially. Germany took its down to 30% from 40%, the United Kingdom knocked its down to 20% from 30% and Japan slashed its corporate tax rate which was pegged at 40% to 23.9%.
Reducing our corporate tax rate and flattening the tax code would go a long way to boost corporate investment in the U.S. History has shown that companies want to do business in countries with hospitable tax rates. Of the five countries enjoying the highest foreign direct investment as a share of their economies, Ireland, Hong Kong and Singapore, all sport corporate tax rates that are below 20%. Among the five countries with the worst foreign direct investment, only one, Russia, has a corporate tax rate below 30%.
Tilting the tax tables in America’s direction would undoubtedly boost business spending and investment at home. It will, however, come at a cost to those countries that have enjoyed their relatively generous tax status over the years.
[Chart showing distinct relationship between foreign investment and tax rates – which I can’t import]
Source: Proprietary (as they say, I’d have to kill you)
Better to just eliminate the corporate tax, It is the source of so much corruption and lobbying. I sincerely doubt it affects GDP growth here. All it has done in Ireland is cause some companies to headquarter there, but not actually work there. Hong Kong and Singapore are successful for other reasons, and unless we decide to become a city state, I don’t see it making a difference.
Steve