U.S. States Lead the World in High Corporate Taxes

Discussion in 'Political Zone' started by Doomsday101, Feb 6, 2009.

  1. Doomsday101

    Doomsday101 Well-Known Member

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    Fiscal Fact No. 119

    America's political leadership is finally waking up to the fact that the tax rates businesses face in the U.S. are way out of step with our major economic competitors. Last year, for example, Ways and Means Chairman Charles Rangel proposed cutting the federal corporate tax rate from 35 percent to 30.5 percent. While a 5 percentage point cut in the federal corporate tax rate may sound significant, it may not be sufficient to meaningfully improve the competitiveness of the United States.

    Currently, the average combined federal and state corporate tax rate in the U.S. is 39.3 percent, second among OECD countries to Japan's combined rate of 39.5 percent.1 Lowering the federal rate to 30.5 percent would only lower the U.S.'s ranking to fifth highest among industrialized countries.

    More recently, other members of Congress—including Sen. John McCain and Congressman Eric Cantor—have released proposals to cut the corporate rate even deeper to 25 percent. While this lower rate would improve the U.S.'s international ranking and competitiveness, that improvement would be mitigated by the high corporate tax rates imposed by many states.

    Many states impose state corporate income taxes at rates above the national average of 6.6 percent. Iowa, for example, imposes the highest corporate tax rate of 12 percent, followed by Pennsylvania's 9.99 percent rate and Minnesota's 9.8 percent rate. When added to the federal rate, these states tax their businesses at rates far in excess of all other OECD countries.

    When compared to other OECD countries:

    24 U.S. states have a combined corporate tax rate higher than top-ranked Japan.
    32 states have a combined corporate tax rate higher than third-ranked Germany.
    46 states have a combined corporate tax rate higher than fourth-ranked Canada.
    All 50 states have a combined corporate tax rate higher than fifth-ranked France.
    Thus, if lawmakers are serious about making the U.S. corporate tax system more competitive internationally, corporate tax rates will have to be reduced both in Washington and in state capitals. State officials should be champions of substantial cuts in the federal corporate tax rate because there is only so much they can do to improve their own competitiveness. After all, even corporations that operate in the three states that do not impose a major state-level corporate tax—Nevada, South Dakota, and Wyoming—still shoulder a higher corporate tax rate than fifth-ranked France and 24 other OECD countries because of the 35 percent federal corporate rate.

    The U.S. is among eight countries with extra corporate tax rates imposed by state or local levels of government. While the burden of these state-level taxes is somewhat lessened because they can be deducted from federal taxes, they do add a second layer of tax and also add considerable complexity for multi-state and multi-national businesses.

    Some 44 states impose a traditional corporate income tax, with rates ranging from a low of 4.63 percent in Colorado to 12 percent in Iowa. Three states—Michigan, Texas, and Washington—impose a variant of a gross receipts tax in which businesses pay tax on their gross sales rather than their net profits.2 Ohio is currently transitioning from a traditional CIT to a gross receipts-style tax but now it has both. And, as mentioned above, three states do not have a state-level corporate tax.

    Table 1 shows that when the state rates are combined with the federal rate (and accounting for federal deductibility), states are effectively imposing a corporate tax rate which ranges from 35 percent to 41.6 percent. Indeed, 16 U.S. states impose a combined corporate tax rate of more than 40 percent, which is at least 12 percentage points higher than the OECD average of 27.6 percent.

    Assuming that no state cuts its business taxes in the next year, the U.S. federal rate would have to be cut to 20 percent in order to bring the combined federal-state rate down to the middle of the OECD pack. But Washington does not bear the entire blame for America's eroding tax competitiveness, nor does it shoulder the entire responsibility for fixing it. State officials also have to be cognizant of the fact that they are not only competing against each other for investment and jobs, but against the rest of the world. The emerging low-tax countries in Europe and Asia benefit from the U.S. remaining a high-tax country.

    In just the past two months, at least six countries have announced plans to cut their corporate tax rates: Canada, Hong Kong, Korea, South Africa, Spain and Taiwan. In an interview in the Korea Times, Choi Kyung-hwan, a member of the new Administration's Presidential Transition Committee, said, "The corporate income tax reduction is not a matter of choice, but a matter of life and death for Korea in an increasingly globalized business environment.''

    In a refrain that is equally applicable to the U.S., Choi went on to say, "Hong Kong and Singapore, which impose significantly lower corporate taxes than Korea, have further slashed taxes recently to draw more foreign investors. Also, France currently levies a 34.4 percent corporate income tax but plans to reduce the tax to as low as 20 percent. Unless Korea cuts corporate taxes, we will not be able to win over multinational firms."3

    A growing body of academic research indicates that foreign direct investment (FDI) can be quite sensitive to the corporate tax rates imposed by a state or country. One recent study of the effects of corporate income taxes on the location of foreign direct investment (FDI) in the United States found a strong relationship between state corporate tax rates and FDI—for every 1 percent increase in a state's corporate tax rate FDI can be expected to fall by 1 percent.4

    A new study of income tax rates in 85 countries by economists at the World Bank and Harvard University found a strong effect of both statutory and effective corporate tax rates on FDI as well as entrepreneurship. For example, the average rate of FDI as a share of GDP is 3.36 percent. But a 10 percentage point increase in the statutory corporate rate can be expected to reduce FDI by nearly 2 percentage points.5

    In the end, the key to improving America's business tax competitiveness is a partnership between federal and state lawmakers to work toward the common goal of lowering the overall business tax burden in the U.S. Otherwise, the U.S. will continue to fall behind in the global tax race simply by standing still.

    Table 1

    see http://www.taxfoundation.org/publications/show/22917.html

    ABQCOWBOY Moderator Staff Member

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    Fair Tax.

    Take you from a Tax Guide the size of the Encyclopedia Britannica, down to something the size of a Comic Book.

  3. Doomsday101

    Doomsday101 Well-Known Member

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    I just know when the rest of the world business operates under a lower corporate Tax rate than us we end up hurting our own business. Instead of acting like US companies are the enemy we should be doing things to encourage expansion which brings in jobs but taxing the hell out of them is not going to do the trick. As far as I'm concerned we could leave personal income tax level where they are for the time being but give the companies a break and allow them to compete instead of looking for ways to lower cost such as sending jobs overseas.

    ABQCOWBOY Moderator Staff Member

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    Preaching to the Choir Dooms.
  5. Doomsday101

    Doomsday101 Well-Known Member

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    I know I just wish others would wake up.
  6. SuspectCorner

    SuspectCorner Bromo Zone Supporter

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    The real US corporate tax burden is about half of the statutory tax rate for corporations... and on par with corporations based in other developed nations. The US has the most complicated and loophole-ridden tax code in the history of mankind. It was designed by lawyers to support lawyers and ensure their everlasting employment.

    Anybody who actually believes US corporations pay anything close to 30% - needs come out from under the ether.

  7. burmafrd

    burmafrd Benched

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    BUT you don't count how much those lawyers COST do you suspect?

    and as regards your source....

    According to New York Times reporter Matt Bai, CBPP is one of three left wing think tanks funded by the Democracy Alliance. The other two are the Center for American Progress and the Economic Policy Institute. According to Bai's account, representatives of CBPP and the other two Democracy Alliance-sponsored think tanks attended the May 2006 meeting of the Democracy Alliance at the Barton Creek Resort near Austin, Texas. Their role was to "talk about the agendas they were busy crafting that would catapult Democratic politics into the economic future."[4]
  8. trickblue

    trickblue Not Old School...Old Testament...

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    There should be little to no corporate tax. The politicians don't care as they know it is passed down to the consumer anyway.... it's just another way they collect more tax money from the American people...
  9. theogt

    theogt Surrealist Zone Supporter

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    What's with all the hate towards corporate tax lawyers?
  10. burmafrd

    burmafrd Benched

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    I think its more pointed at lawyers in general.....

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