U.S. business tax rates rank 126th in the world, according to a report released Thursday by PricewaterhouseCoopers.
With an average total tax rate of 43.8 percent, the U.S. is far behind many of its economic competitors, including, Canada (21 percent), Hong Kong (22.8 percent), and the United Kingdom (33.7 percent).
The U.S. ranks 47th in ease of paying taxes, based on the compliance required in 2013 from a standardized two year-old, limited liability, medium-sized business in each economy’s largest city. Beyond corporate income taxes, the report accounted for sales, payroll, property and capital gains taxes, among others. Such a business would spend approximately 175 hours, or over a week, filing their taxes in the U.S., tied for 64th lowest in the world.
Globally, the report showed positive news for tax rates, with the average amount paid in taxes declining for the 10th year in a row. A standard company paid, on average, 40.9 percent of commercial profits in taxes. The average length of time spent complying was 264 hours, but this was driven up by Brazil’s outlying 2,600 hours for compliance. Median time spent complying with the tax code is a significantly lower 209 hours.
Around the world, the average time spent dealing with taxes has fallen by nearly a week and a half over the past 10 years. PricewaterhouseCoopers credited the drop to the increased use of electronic filing.
Since the report’s methodology examines a standardized business operating in each economy’s largest city, the raw data likely overestimates tax rates in each country, especially in the U.S. Typical U.S. businesses do not have to pay New York’s 7.1 percent general business corporate income tax or New York City’s 8.85 percent general corporation tax.
Even so, the report shows how un-competitive the U.S. tax code is globally. Congress and President Obama should work together to reform taxes and regulation until the U.S. is the best place in the world to do business.
Not only are current business tax rates far too high, but businesses are spending far too much time on their tax payments. Paying accountants and lawyers to navigate the complicated U.S. tax code diverts too many resources from serving customers. A simplified code without special interest tax breaks reduces the incentive for companies to spend further time and money on lobbying.
It is not just complex requirements that add to the U.S. tax burden, it is the frequency at which tax rules change that is especially troublesome. In the report, Mark Mendola of PricewaterhouseCoopers observed that the IRS has been streamlining tax filing in recent years, but time spent filing taxes has fallen only 6 percent in the past six years, and Congress required 4,000 changes to the tax code between 2000 and 2010.
Mendola recommended reducing the amount of information a company must report to the IRS. “Similar to efforts made with respect to individual income tax returns (Form 1040), a streamlined Form 1120 for mid-sized corporations could be very effective for reducing the compliance burden of smaller businesses,” Mendola said.
Any tax reform proposed in the next session of Congress should include at least these three things.
First, it should simplify the tax code and filing process in order to reduce the time and money required by a business to file taxes. Second, it should reduce overall tax rates so that tax reform is revenue-neutral. Third, it should be simple enough that it solidifies tax rules for years to come, reducing the need for hundreds of changes a year moving forward.
Businesses are job creators, and government actively hurts job creation when it forces entrepreneurs to spend resources on filing taxes instead of expansion. When an entrepreneur is deciding where to start a new business, Congress should ensure the burden of the U.S. tax code does not send those jobs overseas.
