Corporate Tax Cuts Would Help Treasury And Investors

Countries worldwide have cut their corporate tax rates in the past two decades. Germany lowered its top rate to 29.6% from 59.7% in 1993. Canada went from 44.3% to 26%, Ireland from 40% to 12.5%. The average top rate for 34 non-U.S. countries went from 36.9% in 1993 to 25.1% in 2014.

The United States has bucked the trend, stubbornly clinging to a top rate of slightly more than 39% — 35% at the federal level, plus an average 4.1% for states.

The Tax Foundation scoured 163 countries, finding only two with top corporate tax burdens higher than the U.S. — the United Arab Emirates (55%) and Chad (40%).

Adopting Global Norms

Lowering U.S. corporate tax rates to the global norm — further, if politically feasible — would no doubt benefit our companies and investors. Moving the U.S. into the global mainstream on corporate taxes might even hold out a carrot for the political class — more corporate tax revenues.

High U.S. corporate tax rates make no sense in an increasingly global economy. High rates don’t raise the revenue they once did — an estimated 11.1% of all receipts in this fiscal year, down from 19.6% in 1969. Even worse, high rates encourage tax-driven tactics and strategies that weaken the U.S. economy.

We’ve seen companies move jobs and operations to countries with lower tax rates. We’ve seen American companies stash nearly $2 trillion in profits overseas to avoid the U.S. tax bite.

We’ve seen companies such as Burger King Worldwide (NYSE:BKW), Chiquita Brands International (NYSE:CQB), Medtronic (NYSE:MDT), AbbVie (NYSE:ABBV) and Mylan (NASDAQ:MYL) announce corporate “inversions” — mergers and acquisitions that transfer headquarters overseas. That’s just the year’s first eight months; more are likely to follow.

The political class harrumphs and howls at this perfectly legal tax avoidance, branding companies as unpatriotic.

Their catcalls divert attention to the politicians themselves, who already have in their hands a fiscally sound and economically sensible way to keep companies in America — lower the country’s punishing corporate tax rates.

Other countries that cut corporate rates weren’t merely kowtowing to corporate power. Their politicians understood that lower taxes would help keep companies at home and bolster their nations’ economies, paying off in faster growth, higher employment and added tax revenues.

Applying Laffer’s Curve

The United States doesn’t necessarily have to choose between larger budget deficits and fixing an onerous corporate tax system that’s out of step with the rest of the world.