No April Fools' Joke: U.S. Has World’s Highest Corporate Tax Rate

No April Fools' Joke: U.S. Has World’s Highest Corporate Tax Rate
March 30, 2012

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

On April 1 the United States earned the dubious distinction of having the highest statutory corporate tax rate of any industrialized nation.

This happened because on April 1 Japan lowered its corporate tax rate, moving the United States to the top of the list with a federal government rate of 35 percent. Most states also apply their own corporate tax on top of the federal tax.

Since 2001, Japan had levied the highest combined corporate tax rate at 39.5 percent, slightly higher than the average 39.2 percent combined federal-state rate in the U.S. Japan’s new rate is 38.01 percent, which includes a 10 percent surtax that will expire after 2014.

‘Paid by Working Americans’

“I think too few people understand that a corporate income tax is ultimately paid by middle-class working Americans,” said Aparna Mathur, director of economic policy studies at the American Enterprise Institute and a former Federal Reserve senior economist.

“The way this happens is that when the U.S. raises its rate, capital flows out of the U.S. to competitor countries with lower corporate taxes,” she said. “The effect of this is fewer jobs for workers in the U.S. and lower wages for workers.”

With the United States having the highest rate in the industrialized world, “The U.S. will be even more uncompetitive relative to the rest of these countries. This is likely to have an adverse impact on the domestic labor force.”

Revenue Neutrality Mistake

Information Technology and Innovation Foundation President Rob Atkinson noted in a blog post at the ITIF Web site the Obama Administration and many in Congress have begun to consider corporate tax reform but insist on “revenue neutrality.”

“The problem with revenue neutrality is that it is likely to neutralize potential benefits of reform,” he wrote. “Simply lowering the statutory corporate rate, but then cutting deductions and credits to pay for it, will do nothing to address the fact that the U.S. also has a very high effective corporate tax rate relative to our competitors.”

50% Higher Than OECD Average

Tax Foundation President Scott Hodge notes in a “Fiscal Fact” report the U.S. corporate rate is more than 50 percent higher than the simple average of the 33 other member nations in the OECD [Organisation of Economic Co-Operation and Development]. “And,” writes Hodge, “our rate is roughly ten percentage points higher than the weighted average of OECD nations.”

Some small OECD nations have slashed their corporate tax rates, and the average of the larger Group of Seven (or G-7) nations has also been falling—especially driven by “dramatic rate cuts instituted by Canada and Great Britain,” Hodge notes.

“Taking the recent Canadian, British, and Japanese rate cuts into account, the weighted average of the G-7 nations is now below 32 percent—three percentage points lower than the federal U.S. rate alone and seven points below the combined U.S. rate,” Hodge wrote.

Internet Info

“The Countdown is Over. We’re #1,” Tax Foundation: http://www.taxfoundation.org/publications/show/28081.html

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)