December 5, 2011
U.S. Corporate Tax System: Falling Behind by Standing Still
New Video Emphasizes Need for Reform
Washington, DC, December 5, 2011—The United States has been slipping from a position of economic competitiveness in recent years, in part because of changing corporate tax rates across the globe. Once a leader internationally, waves of tax reform in dozens of countries have left the U.S. burdened with one of the highest corporate tax rates in the world, slowing new investment and job growth, according to the first in a new series of videos launched today by the Tax Foundation.
"The key to restoring American competitiveness and our long-term economic growth is cutting the corporate tax rate," said Tax Foundation president Scott Hodge. "The Tax Foundation’s new video series will help put the burden of corporate taxes in perspective and encourage policymakers to consider new ideas for reforming the U.S. corporate tax system."
The federal corporate income tax was first instituted in 1909 with a one percent tax rate. Since then it has changed dozens of times, with the current top rate at 35%. When additional state rates are added, the average tax rate for U.S. corporations rises to 39.2%, the second highest in the developed world, only slightly behind Japan’s.
The Tax Foundation video "Falling Behind by Standing Still" is available online.
Script: “Falling Behind by Standing Still”
No matter where you look these days, there is another headline on big corporations and their taxes. And it can be hard to separate the facts from the rhetoric. So let’s look at where we are.
Back in early 1980s, before globalization, the U.S. had a corporate tax rate that was about the same as the rest of the world. Companies in the U.S. paid 46% in taxes.
Then, in 1986, the U.S. cut the corporate tax rate below 35%. And suddenly, the U.S. had one of the most competitive business taxes in the world.
As a result, the economy grew, tax revenues grew, and the deficit went down.
But over time, countries around the world lowered their tax rates as well, countries like Canada, Great Britain, Germany…even Sweden. And it wasn’t long before the average corporate tax rate of those countries fell way below U.S. corporate tax rate.
In other words, when it came to taxes, it became cheaper to do business OUTSIDE the United States.
This meant that tax-friendlier countries became a magnet for new investment and jobs – NOT the U.S.
And while the international corporate tax rate continued to decline, the rate in the United States stayed the same – slowing our economy and making our workers and businesses even less competitive.
We fell behind by standing still.
As the corporate tax rates fell in other countries, their share of the global economic pie grew while ours’ shrank.
Good for their workers, bad for ours.
And here’s why corporate tax rates matter.
Research has found that the corporate income tax is THE most harmful tax to long-term growth.
Meaning countries with a lower corporate income tax are likely to grow faster and attract more investment and jobs than high-tax countries like the U.S.
Also, here in the U.S., corporate taxes cost each household about $2,384 per year in higher prices, lower wages or smaller 401ks.
In fact, 75 countries large and small have cut their corporate taxes in just the past five years alone.
While our rate remains the 2nd highest rate in the world only to Japan – whose economy has been stalled for 20 years.
Until our corporate tax rate is competitive with the rest of the world, our economy will also remain stagnant and the good jobs will be created in places where the taxes are friendlier to investment and innovation.
For more information, visit Tax Foundation dot org.
The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.