One Year. One High Corporate Tax Rate.
This week, one year ago, Japan slashed its corporate tax rate, leaving the United States with the highest effective rate among our competitors: 39.2 percent. With a struggling economy and sluggish job growth, Americans can no longer afford to be apathetic about our global competitiveness.
In a 2012 editorial, Joseph Mason – Moyse/LBA Chair of Banking at LSU’s Ourso School of Business and a senior fellow at the University of Pennsylvania’s Wharton School – asserted:
“Operating under a higher tax rate automatically puts U.S. based firms at a competitive disadvantage to their foreign counterparts. Developments in technology and greater global integration have opened international boundaries. Companies today have fewer deterrents from relocating their operations to areas that provide the most economically conducive environment, putting and inestimable pressure on nations to create commerce-friendly conditions.”
The effect of harsh business climates is already culminating at the state level. In February 2013, Forbes reported:
“Half of the top ten exit states also appear in the top ten tax burdened states (New York, New Jersey, Connecticut, Wisconsin and Maine). Three of those that didn’t make the top ten don’t fall far behind: Illinois ranks 11th; West Virginia ranks 19th; and Michigan ranks 18th.”
Where are these workers and businesses going once they exit states like New York, New Jersey and Maine? To Texas, Arizona, South Carolina, Utah and other states with lower corporate tax rates and less restrictive regulatory policies. For example, between 2008 and 2011, Texas – which has one of the least burdensome tax codes in the nation – added an astounding 165,000 jobs. By January 2013, the state’s unemployment rate had fallen to 6.4 percent – significantly lower than that of New York, New Jersey and Maine which rested at 8.4 percent, 9.3 percent and 7.3 percent, respectively.
On the federal level, the United States lost 46 Fortune Global 500 company headquarters between 2000 and 2011. Japan lost 39 in that same time frame and in 2012 sought to turn the page by reforming and lowering the corporate tax code.
Today’s high federal corporate tax rate impairs our ability to attract foreign investment, distorts financial and economic decision-making by U.S. firms and spawns inefficient government programs and policies. Moreover, it contributes to lower wages and fewer jobs for the American workforce.
Studies have shown that workers bear up to 75 percent of the burden on the corporate income tax, and if the rate were reduced to 25 percent, the average family of four could realize an additional income of $2,484 annually. And in regards to the unemployment rate, reducing our corporate tax rate to that of our competitors could create as many as 2.2 million jobs.
In an April 1 letter to the chairmen and ranking members of the Senate Finance and House Ways and Means committees, 21 CEOs from some of the country’s largest companies wrote:
“Coupled with our complicated tax system, this rate makes American businesses less competitive and makes the U.S. a less attractive place for investment, ultimately harming businesses, investors, workers and consumers…. We know that some choices may be difficult and understand that base-broadeners, such as eliminating tax expenditures, may be necessary to achieve the significant reduction in the statutory rate that is required for the U.S. to better compete globally.”
All parties involved understand the road to corporate tax reform is not an easy one, but America’s tax code has remained static for over a quarter-century. In allowing our tax system to become antiquated, overly complex and burdensome, America’s economic position in the world has weakened.
While this anniversary is not celebratory, it does offer the opportunity to magnify the challenges U.S. job creators and workers face in a nation that boasts the globe’s highest corporate tax rate. The time for reform is now. We must simplify the corporate tax code, eliminate loopholes and lower the rate so American businesses can innovate and thrive in the global marketplace.