Having The Highest Corporate Tax Rate Is No Joke

Today may be April Fools’ Day, but not everything that happens today is a joke.  And as great as it would be to say that the topic this blog discusses is a joke, it’s not. Just like last year, the first day of April is once again greeted with the somber reality that the United States has the highest corporate tax rate.  Although today marks the one year anniversary of this unwanted distinction, they’ll be no celebrating in taxpayer circles. On April 1, 2012, Japan lowered its corporate tax rate to 36.8 percent from 39.8 percent; this left the “United States with the highest effective rate among developed countries: 39.2 percent.”

A US News and World Report piece dated April 2, 2012 explained the issue well in its opening paragraph.  It reads “United States-based companies and hardworking Americans face a steadily growing problem, one oddly self-imposed by Uncle Sam. Our current tax system puts businesses and workers at a competitive disadvantage in the global market and discourages companies from investing in operations here at home.”

This first place designation is not one the U.S. should want to retain.  In addition to harming U.S. companies, there are other tangible harms inflicted upon our nation’s economy.  As the Daily Caller reported, “between 2000 and 2011, the U.S. experienced a net loss of 46 Fortune Global 500 company headquarters, according to a report by Ernst and Young.”

The fact of the matter is there’s nothing trapping big, successful countries from continuing to have their headquarters in the United States.  The issue is a simple one.  If it costs less to move the company to another country with lower corporate tax rates than it does to continue paying the excessive corporate taxes of the U.S., then the company will pack up its bags and move.

Joseph Mason, senior fellow at the Wharton School of the University of Pennsylvania, further explains just how detrimental this is.  He writes: “Operating under a higher tax rate automatically puts U.S. based firms at a competitive disadvantage to their foreign counterparts. Developments in technology and greater global integration have opened international boundaries. Companies today have fewer deterrents from relocating their operations to areas that provide the most economically conducive environment, putting an inestimable pressure on nations to create commerce-friendly conditions.”

Here’s something even more disconcerting, as Red State noted, “The socialist country of Sweden plans to cut its corporate tax rate from 26.3 percent to 22 percent to improve prospects for new jobs and investment.” What this tells us is that a socialist country has a more pro-growth approach to business than the U.S. does.  Considering a Sweden can understand the tremendous economic benefit of lowering its corporate taxes, there’s no excuse that policymakers in Washington shouldn’t also get the picture.

If Congress is serious about getting the nation back on track and getting more people back to work, then the first thing on its plate should be to reform the corporate tax rate.