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Consensus Forms around Lowering Corporate Tax Rate

May 15, 2012

The RATE Coalition has been lobbying for a lower corporate tax rate and has released a new report pointing out that there is a growing bipartisan consensus in Washington to lower the rate from its current high of 35 percent.

The House-passed a budget resolution for 2012, which calls for cutting the federal corporate income tax rate to 25 percent. The Obama administration recently released a plan for lowering the corporate tax rate to 28 percent. In the Senate, Senators Ron Wyden, D-Ore., and Dan Coats, R-Ind., have introduced the Bipartisan Tax Fairness & Simplification Act of 2011, which would lower the corporate rate to 24 percent.

Various deficit commissions, including the Alan Simpson and Erskine Bowles commission and Pete Domenici and Alice Rivlin commission have also called for lowering the corporate tax rate, along with the Economic Recovery Advisory Board chaired by Paul Volcker.

“The U.S. currently has the highest statutory corporate tax rate (just under 40 percent including average state and the maximum federal rate) among developed countries,” said the RATE Coalition report, written by Robert Rizzi and Jonathan Sallet. “Competing nations such as Canada, the United Kingdom, and Japan have lowered their rates in order to attract business activity, but the U.S. has lagged behind. Lowering the federal corporate income tax rate is thus a step towards macro-economic stability and in the direction of sustainable economic growth.”

RATE Coalition co-chair James P. Pinkerton acknowledged that while many corporations pay less than the statutory top rate of 35 percent, their effective tax rate is still high compared to other countries.

“Every economist says if you move measure statutory to statutory or effective to effective, the U.S. is the highest,” he said. “You can always find outriders who are paying nothing. The bulk of corporate America is paying somewhere in the mid-20s as an effective rate. Obviously the current system incentivizes companies to do as much as possible overseas and keep it there. That’s not good for the economy or growth.”

Pinkerton points to a recent study by Ernst & Young that makes the point that the number of Fortune Global 500 companies headquartered in the United States has fallen, with some moving to China. “It’s clear that the U.S. is losing market share among the top companies,” he said. “A lot of that has to do with this disadvantageous tax climate here in the United States. The American economy would do better with a lower corporate rate. That’s the position of most of the political leaders in Washington.”

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