On Thursday, the Tax Policy Center hosted an event titled, “Are U.S. Corporations Really Over-taxed?” The event featured former director of the Congressional Budget Office Douglas Holtz-Eakin as a keynote speaker. A panel following his address included Eric Toder, the co-director of the Tax Policy Center, as well as two professors from the University of Pennsylvania and James Mackie, the director of the Office of Tax Analysis at the Department of the Treasury.
Panelists spent most of the event explaining tax laws and data points rather than taking a policy position on corporate taxation. Regardless, it is evident that United States corporations are over-taxed.
Corporations based in the United States have to endure the highest statutory corporate income tax rate in the developed world. The 39.1 percent top marginal corporate tax rate is 13.8 percentage points above the Organisation for Economic Co-operation and Development average.
On the other hand, U.S. corporations don’t have to pay a value-added tax, which every other developed country collects. The state sales taxes that U.S. corporations pay are all in the single-digits, while 30 of the 34 OECD countries have VATs in the double-digits. To some extent, this narrows the gap between the U.S. corporate tax code and the uncompetitive nature of foreign competitors.
However, the U.S. is also one of only six developed countries that practices international taxation. When a corporation tries to invest income it earned abroad back in the U.S., it must pay tax on that investment. The argument against such a system is simple: The tax code should not punish businesses for wanting to invest their money in the U.S.
“The international tax system is a beautiful antique from the 19th century,” said Holtz-Eakin in his keynote address. “Our companies are at a disadvantage right now.”
The U.S. tax code is also uncompetitive in terms of the ease of doing business. Businesses must expend too many resources navigating a tax code more than 70,000 pages long. One report by PricewaterhouseCoopers said a typical U.S. business spends 175 hours a year filing its taxes, putting the U.S. at 47th in the world. These resources would be better spent innovating or lowering prices for customers.
The idea behind corporate tax reform is to make the U.S. the best place in the world — or at least not one of the worst places — to do business. Rather than valuing the success of entrepreneurs, the government currently punishes them for wanting to invest in their own country. For more jobs and better economic growth, Congress and the president need to enact comprehensive business tax reform as soon as possible.
