August 29, 2008
Stagnant U.S. Business Tax System Potentially Harmful to Competitiveness
Various Measures Comparing International Rates Show U.S. Increasingly Out of Line
Washington, DC, August 29, 2008 - A recent study shows that while America has left the major features of its business tax system unchanged over the past fifteen years, virtually all developed nations have lowered their corporate tax rates, potentially hurting the competitiveness of the United States.
In Tax Foundation Fiscal Fact No. 143, "Comparing International Corporate Tax Rates: U.S. Corporate Tax Rate Increasingly Out of Line by Various Measures," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., uses various methods to compare U.S. corporate tax rates with member nations of the Organization of Economic Cooperation and Development (OECD) and the G-7 countries.
"The U.S.'s combined federal-state statutory corporate tax rate (39.3%) is now well above the weighted average for both the member nations of the OECD (31.9%) and the larger G-7 countries (33.8%)," says Carroll. "Moreover, both groups of countries continue to lower their tax rates. Since the early 1980s, the weighted average corporate tax rate has fallen by 38 percent for OECD nations and 37 percent for the G-7 countries, not counting the U.S."
Because economists often use the "effective marginal tax rate," a measure that accounts for the major features of a country's business tax system—corporate tax rate, depreciation, investor-level taxes, and other consideration—to gauge how well a country's business tax system stacks up, Carroll also compared nations by this measure.
"When we take a more comprehensive look at the business tax system and account for changes in the business tax based, we find that the effective marginal tax rates of other nations have fallen while the United States has stood still," Carroll explains. "The effective marginal tax rate abroad has fallen by about 30 percent since the early 1980s while remaining largely unchanged in the United States."
Carroll points out that the trend toward lower rates abroad is still strong.
"Nine of the thirty OECD member nations—including Canada, Germany, the United Kingdom, Italy, Switzerland, Spain, New Zealand and the Czech Republic—lowered their corporate tax rates between 2007 and 2008," Carroll states. "These measurements indicate quite clearly that the business tax environment abroad has changed considerably over the past two decades."
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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To set up an interview to discuss corporate income taxes, please contact Matt Moon, the Tax Foundation's Manager of Media Relations, at (202) 464-5102.
