corporate tax rates Archives - Shopfloor

America’s Founding Fathers Would Be Proud of U.K. Corporate Tax Policy

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People love to compare the U.S. and U.K. – we say “fries, elevator and apartment” and they say “chips, lift, and flat.” The differences in the way we turn a phrase is amusing – the way we differ in our approach to corporate tax policy is hardly so.

Today the U.K. announced it is reducing its corporate tax rate to 20 percent – exactly half of the U.S. rate. In fact, the U.S. maintains the highest corporate tax rate in the world among developed nations – a first place finish no one should be proud of. Given the reasons our nations separated, the irony of being envious of tax policy in the U.K. should not be lost on anyone, least of all our policymakers.

A major part of pro-growth policy is competitive tax policy – and with every day that the U.S. corporate rate is the world’s highest, the rest of the world is passing us by.

It’s far past time that we reformed our corporate rate to a level that will attract investment and growth. It’s a major piece of the puzzle to achieving a manufacturing resurgence and, as a result, an economic resurgence as well.

Focus on Corporate Tax Reform Needs to Last Beyond the Presidential Campaign

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Like columnists Jim Carter and Jason Filchner, manufacturers are buoyed that Presidential candidates—on both sides of the aisle—are talking about reforming our nation’s tax code.  As Carter and Fichtner point out in their March 6th op ed in Investors’ Business Daily, our corporate tax rate needs to be lowered to a level more in line with our competitors’—for us, that’s 25 percent or lower. 

We also need to move from our “worldwide” tax system to a more competitive territorial system like those used by our major trading partners. And we shouldn’t stop there.  Our overall tax code needs to be simpler, more transparent, permanent, predictable and efficient.

While all of the candidates recognize the need for tax reform—and some have ideas very similar to Manufacturers—we need to ensure that tax reform is not just an issue for the campaign trail but an action item for the new Administration.

It Costs More to Manufacture in the United States and Taxes Are a Big Part of the Problem

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Despite what many would like you to think, U.S. companies shoulder a larger tax burden than their counterparts overseas.  There’s a lot of focus in Washington on the statutory federal corporate tax rate, which , at 35 percent, will be the highest among industrialized countries as of April 1, but that’s only part of the equation. 

When you factor in business deductions and credits, the average 28 percent “effective tax rate” paid by U.S. corporations also is higher than the rate paid by their foreign counterparts. 

In their latest video, the folks at the Tax Foundation do great job of debunking claims about the corporate tax burden and showing how U.S. companies tax bills stack up on a global basis. 

The short clip reinforces the Manufacturing Institute’s report  on the structural cost of manufacturing in the United States —it costs more to manufacture in the United States and taxes are a big part of the problem.

Presidential Candidates Talk Manufacturing

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With all eyes shifting from Iowa to New Hampshire, the six remaining Republican presidential candidates gathered for two debates in the Granite State this past weekend.

Both debates featured the full ensemble – Speaker Newt Gingrich, Gov. Jon Huntsman, Rep. Ron Paul (R-TX), Gov. Rick Perry, Sen. Rick Santorum and Gov. Mitt Romney.

Saturday night’s ABC News and Yahoo! News debate encompassed a variety of issues, the obstacles to growing our economy and creating jobs. Sen. Santorum highlighted the NAM’s cost study, which shows that it is 20 percent more expensive to do business in the United States. This figure excludes labor costs. The cost burden rose from a 2008 report which put it at 17.6 percent. The report indicates the increase is due to widening gaps in regards to corporate tax rates and employee benefits.

While we have emerged from the economic recession, we are still facing challenging times. Unemployment remains at 8.5 percent and employers frequently cite “uncertainty” as their reasons for not expanding. This in turn, lowers our competitive edge. These topics were also echoed during Sunday’s NBC News and Facebook debate.

Several other candidates, including Gov. Romney and Gov. Huntsman discussed the need to become more competitive and Speaker Gingrich reiterated his plan to lower the corporate tax rate.

Manufacturing needs to be at the forefront of our economic recovery and it is encouraging to see presidential hopefuls talk about the need for a “manufacturing renaissance.” The National Association of Manufacturers is hopeful that the candidates will continue to discuss their manufacturing plans during the upcoming South Carolina and Florida debates.

Choosing the Right Tools for Economic Growth

By | America's Business, Economy, General, Trade | No Comments

Nina Easton, senior editor-at-large of Fortune, looks at the Administration’s efforts to revive the economy.

Talk to business leaders — the people who actually hire people — and you don’t hear worries that Washington is running out of tools. What you hear, pretty consistently, is that this White House stubbornly insists on reaching for the same wrong toolbox.

One policy from the right toolbox, she writes, is free trade.  Members of both parties support free trade policies, but that bipartisan accord has yet to break the stalemate on three pending trade agreements: Korea, Colombia and Panama.

“Overseas markets are ripe for American products,” says Jay Timmons, CEO of the National Association of Manufacturers, who likes to repeat the mantra that 95% of customers are abroad.

The administration has given lip service to the importance of this fact — the President says he wants to double exports. But the only three free trade agreements now before Congress — with South Korea, Colombia, and Panama — have yet to move forward, trapped in negotiations over spending more money on trade adjustment assistance. According to the U.S. International Trade Commission, the South Korea deal alone would result in an estimated net increase in American exports of up to $4 billion in its first decade. No magic bullet, but nothing to sneeze at either.

Meanwhile, economies around the globe are forging deals with each other. As Timmons notes: “There are 120 free trade agreements being negotiated. We’re party to one. We’re getting our clocks cleaned.”

Easton goes on to highlight some of the NAM’s other concerns about U.S. policy, namely the corporate tax rate (the second highest in the world) and the high cost of doing business in the country.

Earlier: Timmons writes about the pending trade pacts in the Daily Caller.

Rep. Paul Ryan on Growth, Taxes and Competitiveness

By | Economy, Taxation | No Comments

From today’s news conference on the 2012 budget proposal from Chairman Paul Ryan (R-WI) of the House Budget Committee, “The Path to Prosperity.”

We need two things: We need spending cuts and reforms, and economic growth. You raise taxes on the economy, you raise taxes on the American people, you don’t get the growth.

Here’s the other problem. We’re now in the 21st Century. We are in a global economic environment. In Wisconsin, we don’t just compete with people from Illinois and Iowa, we’re competing with people from India and China. And when we tax our businesses at the highest tax rate in the industrialized world,  when we tax our producers, our small businesses, our economic producers, more than our foreign competitors tax theirs, we lose, they win. We don’t want that to happen.

That’s why we need economic growth through fundamental tax reform.

The Chairman’s comments on global tax competitiveness were right on, directly in line with National Association of Manufacturers policy and the “Strategy for Jobs and a Competitive America.”

As noted below, the budget plan proposes:

Promoting Economic Growth and Job Creation
Individual Tax Reform: Simplifies the broken tax code, lowering rates and clearing out the burdensome tangle of loopholes that distort economic activity; brings the top rate from 35 to 25 percent to promote growth and job creation.
Corporate Tax Reform: Improves incentives for job creators to work, invest, and innovate in the United States by lowering the corporate tax rate from 35 percent, which is the highest in the industrialized world, to a more competitive 25 percent.

The House GOP Budget Proposal on Tax Rates

By | Economy, General, Taxation | One Comment

From the Chairman Paul Ryan (R-WI) of the House Budget Committee, the FY2012 Budget Proposal, “Path to Prosperity.”

Promoting Economic Growth and Job Creation
Individual Tax Reform: Simplifies the broken tax code, lowering rates and clearing out the burdensome tangle of loopholes that distort economic activity; brings the top rate from 35 to 25 percent to promote growth and job creation.
Corporate Tax Reform: Improves incentives for job creators to work, invest, and innovate in the United States by lowering the corporate tax rate from 35 percent, which is the highest in the industrialized world, to a more competitive 25 percent.

U.S. Takes the Lead — On Global Corporate Tax Rates

By | Taxation | One Comment

Japan officially lowered its statutory corporate tax rate today, making the United States the global leader in taxation of business.

The Heritage Foundation explains what this means for the U.S. economy and job creation. From the Foundry Blog, “Morning Bell: Stop Sending Jobs Overseas.”

In 1989 the developed nations in the Organization for Economic Cooperation and Development (OECD) had an average top marginal corporate tax rate well above the U.S.’s 34 percent rate. Since that time the world’s industrialized nations have dropped their average corporate tax rate to about 25 percent. The U.S., meanwhile, has gone in the opposite direction. We now have a 35 percent rate at the federal level that rises to 39 percent once the average of state corporate taxes are mixed in. And today, Japan is scheduled to implement its own corporate rate reduction, which will officially make our 35 percent rate the highest corporate tax rate in the world.

Owning the world’s highest corporate tax rate is a jobs killer. Imagine you are a global corporation looking to invest in a new factory that will produce goods for American consumers. Do you build your factory with hundreds of new manufacturing jobs in Canada, where the top central government tax rate is 16.5 percent? Or do you choose a location in the United States, where the top tax rate is 35 percent? Is that even a choice? Our high corporate tax rates are a huge manufacturing job repellent.

Liberals have long argued that corporate tax cuts are not necessary since the effective corporate tax rate (calculated by dividing the amount businesses pay in taxes by their incomes) is comparable to other OECD countries. But gaming the tax system to reduce your effective tax rate is not free. It requires a substantial investment in tax lawyers and lobbyists for major corporations to get your tax bill down. So again consider a foreign investor or medium-size corporation looking to expand production. Neither of the firms has the tax lawyers and lobbyists needed to lower their effective tax rate. Do they choose low-tax Canada, where they can focus on their core business and pay low taxes? Or do they choose the U.S., which requires significant resources devoted to tax law compliance and lobbyists in Washington to assure a low tax rate? Again, is this even a choice?

The U.S. economy is slowly beginning to finally add jobs to the economy. But so is the rest of the world, and many economies are growing much faster. If we want to stay competitive, if we want to stop sending jobs overseas, we must lower our corporate tax rate.

Yes, Prime Minister Kan is contemplating returning to the higher tax rate in response to the devastation from the earthquake and tsunami, but that’s no strategy for economic or national recovery.

See also James Pethokoukis, Reuters, “No April Fools’ joke, U.S. now world’s highest corporate taxer.” Earlier, The Tax Foundation, “U.S. Corporate Tax Rate Soon to Be #1

Lower Corporate Tax Rates Would Boost Growth (and Manufacturing)

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Martin Feldstein of the American Enterprise Institute, writing in The Wall Street Journal, “Want to Boost the Economy? Lower Corporate Tax Rates“:

President Obama has reached out to the business community with talk of lowering the corporate tax rate and improving the tax treatment of profits earned abroad by American companies. That would certainly be an important improvement in our tax system. Unfortunately, his desire to use the elimination of “loopholes” to avoid any loss of corporate tax revenue means that he cannot possibly go far enough in reducing corporate tax rates.

The U.S. corporate tax rate is 35% at the federal level and 39% when the average state corporate tax is included. The average rate in the other industrial countries of the Organization for Economic Cooperation and Development (OECD) is just 25%. Only Japan has as high a rate.

Eliminating every loophole in the taxation of domestic corporate profits identified by the administration’s own Office of Management and Budget would raise less than $60 billion of extra revenue in 2011, enough to lower the combined federal-state corporate rate to 35%. The U.S rate would still be higher than in every other country but Japan, and a full 10 percentage points higher than the average in other industrial OECD countries.

The full piece is behind a WSJ subscription wall, but AEI will post the column on its website on Feb. 22.

See also Curtis Dubay, Heritage Foundation, “Corporate Tax Reform Should Focus on Rate Reduction

Sen. Sessions: Corporate Tax Rates, a Job Factor, a Big Job Factor

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Sen. Jeff Sessions (R-AL), the ranking member of the Senate Budget Committee, spoke directly to the issues of competitiveness and global tax rates at a committee hearing Wednesday, “Tax Reform: A Necessary Component for Restoring Fiscal Responsibility.”

We have, even in real rate terms, one of the highest, if not the highest corporate [tax] rate in the developed world. Corporations are making decisions every day: where to expand, where to hire workers…

This is not academic. This is going on every day. We have an unemployment rate that is unacceptable and to have the highest corporate tax rate virtually in the world — and other nations are seeing the light in reducing it — and we remain high?

So even if we eliminate certain deductions and have a flat rate that appears lower, it seems to my simple mind that we’ve got no less real burden on the corporate community than we had before.

I believe we need to simplify, but I also think it would be a big mistake if we don’t reduce the rates. The U.K. is reducing their rates, Canada I understand is going to 16 percent, so if we’re at 28, 27 [percent] after we’ve adjusted, we’re still way above that and a company making a decision of where to produce a product might well choose another country than our own country to produce that product and cost us jobs…

The entire world is recognizing that the corporate rate is a job factor, a big job factor.

A hat tip to Andrew Stiles at NRO’s The Corner.