As the current economic crisis runs its course, lawmakers must figure out how to help this nation’s “real economy” of goods and services regain its accustomed place as the strongest in the world. By far the best and the easiest place to start is by reforming America’s corporate tax structure to catch up with Europe and Asia. Step one is a lower corporate income tax. No better way exists to immediately improve the competitiveness of American companies, to repatriate jobs from abroad back to the United States, and to revitalize the whole economy.
Contrary to what Barack Obama claims, U.S. corporate income tax rates are among the world’s steepest. With a top rate of 35 percent, America hits its businesses harder than any of the 27 members of the European Union. Even Sweden, with its longstanding commitment to a massive socialist welfare state, has a top rate of only 28 percent – 20 percent lower than ours. Among the 10 freest economies in the world, the United States has the highest corporate income tax rate. Even in our own hemisphere, we are at a severe competitive disadvantage with Canada, our biggest trading partner, whose top corporate rate of 19.5 percent is scheduled to fall to 15 percent by 2012.
What’s worse, individual states on average add another 4 percent on top of the 35 percent national rate. We also “double tax” corporate profits, at the point where they reach individual 401K owners and pensioners, by taxing 15 percent of dividends and 15 percent of capital gains. Those rates are scheduled to rise to at least 20 percent in the next three years, and presidential candidate Barack Obama proposes hiking them to 28 percent. These rates matter greatly, because corporations don’t pay taxes, the customers of corporations pay taxes through higher prices, or, for stockholders (again, including pensioners, including union pensions) in lower financial returns. Worst of all, the high U.S. corporate tax rates serve either to kill jobs entirely or to chase them offshore, where companies can keep more of their profits under lower foreign rates.
