September 26 2012

Keys to Corporate Tax Competitiveness: Low Rates, No Preferential Treatment

Vicki E. Alger

This month the Cato Institute released its 2012 Corporate Tax Competitiveness Rankings. Here are some interesting findings to ponder:

 

The U.S. effective tax rate on new corporate investment is 35.6 percent, almost twice the average rate for the 90 countries studied.

This rate is also the highest rate among the major industrial nations (18.2 percent).

Only Argentina (43.2 percent), Chad (36.4 percent), and Uzbekistan (35.7 percent) have higher rates than the U.S.

 

Where should we be looking for reforms? Look north to Canada. Since 2000, Canada has lowered its corporate tax rate from 42.4 percent to 26.1 percent today. Meanwhile, corporate tax revenues have remained steady as a percentage of GDP, at slightly more than 3 percent over that same period. The bottom line when it comes to corporate tax competitiveness is:

 

Growing numbers of tax experts and policymakers recognize that the U.S. corporate tax system is a major barrier to economic growth. The aim of corporate tax reforms should be to create a system that has a competitive rate and is neutral between different business activities.

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