One of the things the business community was expecting from the Republican controlled government is a lowering of tax rates, and the U.S. corporate rate does need to be lowered.
According to the Tax Foundation, the U.S.’s combined state and federal corporate tax rate of 38.9 percent is the third highest in the world. The top federal corporate rate is 35 percent of all income .
America’s high corporate tax rate is uncompetitive. The rest of the OECD (a group of developed countries) have an average rate of 24.66 percent. In fact, the U.S. is one of only 4 countries that have a corporate tax rate of over 35 percent.
The uncompetitiveness of America’s corporate taxes is even starker when they are compared to trading partners.
There are other problems with the U.S. tax code. For example, the U.S. has a “worldwide” corporate tax system. That means any corporation headquartered in the U.S. has to pay taxes on any money earned overseas. It is part of the reason why more and more American corporations are choosing to perform “inversions” or relocate their headquarters to lower tax countries in order to avoid paying American corporate taxes.
Finally, with a corporate tax rate so high, it is no wonder that the current corporate tax system is riddled with loopholes. These loopholes have dropped the effective corporate tax rate to as low as an effective Federal rate of anywhere from a range of 14 percent to 25.9 percent according to the General Accounting Office. Corporate tax cuts will increase the deficit and shift the tax burden to individuals unless these loopholes and deductions are repealed.
There is a good case for cutting corporate taxes. It would make America more competitive and redirect resources more efficiently. However, it must result in a flatter system so corporations won’t be able evade taxation.