U.S. Corporate Tax System Is No Longer Affordable

U.S. Corporate Tax System Is No Longer Affordable
June 28, 2013

Tom Giovanetti

Tom Giovanetti is president of the Institute for Policy Innovation in Dallas. (read full bio)

What if I told you there was something we could do to grow our economy, create jobs, and raise wages higher than they are today? Something that would grow our economy by more than $200 billion each year?

Does that sound like a good idea? Especially since the president and most of Congress have already at least acknowledged that it needs to be done?

I’m talking about corporate tax reform—specifically, getting the U.S. corporate rate down to where it would be competitive with our, well, competitors.

Competitors’ Rates: 24% Lower

Over the past 25 years, most of our international competitors have lowered their corporate tax rates. Major countries such as Canada and the UK have lowered their corporate tax rates and simplified their tax systems such that they are far more attractive places to site a new business. In 2015, when all of their scheduled reductions are fully in effect, our competitors’ average corporate tax rates will be 24 percent lower than ours, according to a recent Ernst & Young study.

It’s critical to understand how wildly out of whack our corporate tax rate is when compared with other industrialized countries when you hear inflammatory news stories about how U.S. companies are “stashing profits” overseas. There’s a reason that money is overseas—it was earned there, and it was taxed there, but if a U.S. company wants to bring some of that cash back home, it gets subjected to additional taxation to bring it up to our exorbitant and uncompetitive tax rates.

Smaller U.S. Economy, Wages

The Ernst & Young study found:

  • In 2013 alone, the U.S. economy will be between 1.2 and 2.0 percent smaller than it would have been with a more competitive tax rate.
  • That’s equivalent to our economy being between $235 billion and $345 billion smaller each year than otherwise.
  • In the long run, if our corporate tax rate remains uncompetitive, our economy will be smaller by between 1.5 and 2.6 percent than otherwise.
  • Our uncompetitive tax rate results in U.S. wages being depressed by at least 1.2 percent.

With a lagging economy, high unemployment, and depressed wages, we can no longer afford this tax system.

It’s time for our elected officials to stop paying lip service to corporate tax reform and just get on with it. We might not be able to agree on much, but surely we can agree on corporate tax reform that grows the economy, raises incomes, and brings home trillions of dollars in capital.

If you were starting a company today, would you launch it in the United States, with a 35 percent corporate tax rate, or go across the border to Canada, where the corporate tax rate is 15 percent?

I hear Vancouver is nice this time of year.

Tom Giovanetti (tomg@ipi.org) is president of the Institute for Policy Innovation in Dallas. Reprinted with permission of TaxBytes, published by the IPI.

Tom Giovanetti

Tom Giovanetti is president of the Institute for Policy Innovation in Dallas. (read full bio)