Monday, March 14, 2011
America’s Corporate Tax Nightmare
Take a look at this chart and weep. Somehow over the past two decades, the rest of the developed world has learned that corporate taxes need to be low and the result has been a steady reduction. The
out on this process. USA
During the same time, the rest of the world has deployed a VAT consumption tax that works wonderfully.
Continuing tax reform will likely see just about all economic activity been taxed at a low set rate. This could include incomes and interest. This makes the organized economy effectively a tax farmer for the government largely eliminating much of the collection cost borne by government and industry.
is out of step and this results
directly both the fiscal deficit and the trade imbalance. USA
There is nothing easier to fix than the
economy. That economy is actually
capable of running at a sustained ten percent growth for several years during which the economy of
would be subsumed and brought into the modern world. Mexico
Terence Corcoran February 23, 2011 – 8:08 pm
tax rates are distorting investment decisions U.S.
In his State of the Union address and in comments since, U.S. President Barack Obama has demonstrated a remarkable ability to talk around the corporate tax policy nightmare taking shape across
. Not only are America U.S. corporate tax rates now essentially the
highest in the world, other elements of tax policy are distorting
investment decisions. U.S.
Much has been said about the fact that
corporations are sitting on as
much as US$2-trillion in cash. But some new research suggests as much as
US$1-trillion may be sitting on U.S. U.S.
corporate books outside the United States,
money that American businesses are reluctant to bring home to distribute or
invest — because high
corporate tax rates and rules discourage repatriation of foreign profits. U.S.
The President’s idea of corporate tax reform is to get out a shotgun and hunt down corporate loopholes that he and other Democrats claim are draining
government coffers and undermining growth. U.S.
He was at it again last week, taking aim at his favourite corporate target: “We shouldn’t provide special treatment to the oil industry when they’ve been making huge profits,” he said, ignoring the fact that there are no special oil industry loopholes to be found. As for across-the-board cuts in
corporate taxation, Mr. Obama said he wouldn’t sign on to any reductions in
corporate tax rates until the existing loopholes are removed. U.S.
In Mr. Obama’s view,
needs high corporate tax rates to reduce astronomical deficits — a fiscal strategy
that plays to the anti-corporate crowd that still seems to dominate the Obama
adminstration. But here’s an idea: If the administration doesn’t like America U.S. corporate interests influencing the debate,
maybe they’ll take some guidance from a Canadian, Jack Mintz, head of the School of Public Policy
at the . University
In a paper released yesterday by the Cato Institute in
, Mr. Mintz produced the latest
data on corporate taxation around the world. For some countries, including Washington , the
numbers look good. Since 2005, the marginal corporate tax rate on new capital
investment has dropped by five percentage points to 20.5%. In other
countries, from Canada Germany to Italy and , marginal corporate rates
have been cut by as much as nine percentage points. Denmark
As the nearby table shows, the result is an American disaster in the making. And as such, there is no reason for complacency in
though Canadian corporate tax rates have dropped and are expected to continue
to fall in coming years, the high Canada corporate tax rate remains a
threat to the health of the Canadian economy. U.S.
In a speech in Toronto yesterday, Mr. Mintz noted that
Canada is part of a North American economic
region that very much depends on economic expansion and
success. Canada’s lower tax rate might provide a competitive advantage against
the United States, but the gains from that advantage will be slim if the U.S. corporate
tax rate remains outrageously uncompetitive with the rest of the world. “A poor
economic environment in the U.S. United States
through trade. Canada Canada and
benefit from a competitive North American region.” Mexico
U.S. fails to
attract investment due to high marginal tax rates on corporate profits,
will lose out. In political terms, Canadians should have as great an interest
in pushing Canada
corporate tax reform as they have in lowering Canadian rates. U.S.
The perverseness of the
high-tax regime was reinforced by a recent paper from the
of Management’s Michelle Hanlon. In the paper — The Real Effects of
Accounting Rules: Evidence from Multinational Firms’ Investment Location and
Profit Repatriation — Ms. Hanlon and others demonsrate that U.S. corporate
tax rules and the world’s highest corporate tax rates shape U.S. corporate
investment decisions. Sloan School
The high marginal tax rate — almost 35% — is a problem in itself. But the
is the only country in the world that taxes its corporations on the basis of
world profits. Every dollar earned abroad must bear a 35% tax rate. If the
profits are earned in United States Canada,
the corporation would pay 20.5% to Canadian governments, but then be forced to
pay 14.5% more when profits are distributed back to the . United States
To avoid paying that
tax, corporations are allowed to defer payment and also keep the profits
abroad, where the money continues to earn income at reduced foreign tax rates.
The perverse effect is to promote cash hoarding by U.S. corporate interests abroad.
Some say as much as US$1-trillion may be sitting offshore, tax deferred, as
executives continue to make money without paying U.S. tax. U.S.
Mr. Obama may be hoping to get his hands on that cash storehouse to lower the
deficit. But if he does, it would be a major blow to U.S. corporate balance sheets. As
Jack Mintz suggests in his Cato report, closing loopholes isn’t the answer.
“The aim of corporate tax reforms should be to create a system that has a
competitive rate and is neutral between different business activities.” He
called for a sharp drop in U.S. U.S.
corporate rates of 10 percentage points — something that would be as good for
Canadians as it would be for . America