While other countries are cutting their corporate tax rates, the U.S. is maintaining the highest. On April 1, Japan will cut its corporate income tax rate from 39.5% to 36.8%. Meanwhile, the average combined federal and state corporate tax rate in the U.S. will remain 39.2%.
This is one category where it is bad to be first. As the following video from Tax Foundation shows, high corporate tax rates harm the United States’ global economic competitiveness.
The federal corporate tax needs to be cut in order for American businesses to compete in the global marketplace. A problem with high corporate tax rates is that they reward successful, job-creating companies with higher taxes. If the corporate tax rate remains the no. 1 highest, then American jobs and investments will continue to relocate to countries that have much lower tax burdens than we do here. Reducing the corporate income tax would lead to more economic growth, job creation, and higher tax revenues — at a time when we need it most.
The high corporate tax rate doesn’t just affect businesses – it affects people too. The high tax rate means consumers pay higher prices and workers suffer lower wages and higher unemployment.
In the Wall Street Journal today, House Budget Committee Chairman Representative Paul Ryan talks about the importance of fundamental tax reform: “We reject calls to raise taxes, but revenue nevertheless remains steady under our budget because we close special-interest loopholes. More important, our reforms will grow the economy — and the faster the economy grows, the more revenue the government will have to meet its priorities and start paying down the debt.”
Corporate tax rates will likely be a big topic of discussion as November approaches. There are a lot of plans floating around, and thankfully there is a lot of consensus that the rate needs to be cut. The following are a few of the proposals out there:
- House Republicans released their “Path to Prosperity budget plan” today. The plan reduces the number of income brackets from six to two, and it sets rates at 25 percent and 10 percent. It also turns the tax code into a "territorial" tax system, which means that businesses don’t face extra taxes on the profits they earn overseas.
- President Obama introduced a plan to lower rates to 28 percent and broaden the base. Unlike the GOP plan, Obama’s proposal does not create a territorial tax system; his plan imposes high penalties on American firms that have operations abroad.
- Republican presidential candidates have proposed their own plans too. Mitt Romney's plan would lower the corporate tax rate to 25%. Rick Santorum's plan would lower the corporate tax rate to 17.5% and exempt manufacturing activity completely. Ron Paul wants to cut it to 15%.