With the House Ways and Means Committee due to hold hearings on corporate tax reform next week, the Tax Foundation recently released a comparison of the U.S. corporate tax system to other countries around the world.
According to the analysis, of the 30 member countries in the Organization for Economic Cooperation and Development , the United States is lagging far behind other nations in adopting a policy of corporate income tax reduction.
Using the most recent OECD data, the combined statutory U.S. corporate income tax rate of 39.3 percent ranks second-highest among OECD countries. Japan (39.5 percent) and Germany (38.9 percent) have the first and third highest corporate income tax rates, respectively. The nation with the lowest corporate income tax rate in the OECD is Ireland (12.5 percent).
The latest countries to consider corporate income tax rate reductions are Australia, Germany, New Zealand and Spain. OECD countries have, on average, reduced their corporate tax rates by 14.9 percent between 2000 and 2006, while rates in the United States have remained unchanged under President Bush.
The analysis suggests that lawmakers should consider lowering the federal corporate tax rate to below 30 percent, for three reasons:
- The OECD average is 28.7 percent and because state corporate tax rates in the United States range from 0 to 12 percent, the federal government should aim for a federal rate that will give states a chance to compete with a combined rate that is close to the world average;
- State governments would feel less pressure to offer special tax preferences and credits in their efforts to attract new international business investment; and,
- U.S. multinationals would feel less pressure to engage in corporate inversions and other forms of profit shifting.
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