CNBC host and analyst and all-around smart guy Larry Kudlow comments on the inclusion of pro-growth tax relief in the Obama stimulus plan, “Team Obama Adds Business Tax Cuts.” He’s positive, but says more can be done:

However, as yet there is no Obama signal for the most powerful tax incentives that would slash the 35 percent top corporate rate to something around 20 percent. This should apply both to large C-corps and small-business S-corps. It would attract investment, improve future job creation, and relieve consumers who really shoulder the corporate tax costs. Additionally, full cash expensing for business investment write-offs would provide an even greater bang for the buck.

So while the new tax-refund plan and faster depreciation are positives, they are still much weaker than a full-bore supply-side tax-rate reduction that could even morph into full-fledged corporate tax reform. Now we wait for a Republican response, which hopefully will be bold corporate tax reform as well as reduced individual tax rates (at least for the middle class).

Mark Steyn notes the column by Steve Forbes urging President-elect Obama to stimulate economic growth by emulating Ireland’s corporate tax rates and adds:

To a certain type of simple-minded populist, the idea of soaking vast faceless corporations is appealing. But in the end a “corporation” cannot pay tax: The Globocorp corporate HQ looming in chrome and steel over the skyline does not have a pocket to dip into. Like all taxes, the actual cash has to be ponied up by flesh-and-blood human beings - the owners, workers and employees of the corporation. The growing gap between US corporate rates and other developed nations is a massive disincentivization for real human beings to start and grow a business here. And for those already here it encourages the kind of short-term thinking that leads to Bailoutistan and American sclerosis.

From Der Spiegel, reporting on German Chancellor Angela Merkel’s official address for the New Year:

Chancellor Angela Merkel signalled on Wednesday that she may have dropped her opposition to cutting taxes ahead of a meeting on Monday to discuss a fresh economic stimulus package.

 

She gave a vague pledge to cut taxes in her New Year address due to be broadcast on TV later on Wednesday, saying: “Wherever it is justifiable with a view to the next generation, we will ease the burden on all who pay taxes and contributions.”

 

The remark suggests that she is prepared to make concessions to the Christian Social Union, the Bavarian sister party to her conservative Christian Democrats. The CSU has been calling for tax cuts to help avert recession.

Also, from Singapore, “Prime Minister Lee Hsien Loong’s New Year’s Day Message“:

8. Apart from these two measures, we also lowered corporate taxes in 2008. New enterprises and smaller companies enjoy further tax exemptions, which mean that many pay little or no taxes. For households, the 2008 Budget package included Growth Dividends, U-SAVE, S&CC and Rental Rebates, and top-ups to Post-Secondary Education Accounts. These schemes are helping Singaporeans, particularly lower income families, to tide over the difficult period.

From an editorial, Investor’s Business Daily, “Memo To Obama: Cut Taxes For All“:

If Obama is serious about getting the economy going again, he could do a number of things — and right away, not years from now, as with the $675 billion to $775 billion he plans to spend on infrastructure and imaginary “green jobs.” These steps would include:

• Cutting corporate tax rates. U.S. businesses pay a top rate of 35% on income. That rises to 40% when you add in state taxes. In Europe, the average corporate tax in 2007 was 24.2%, according to the international consultancy KPMG.

Is it any wonder some of our most successful corporations move offshore? Cutting corporate taxes even to 25% would improve investment returns — and lead to more jobs and output.

Want to spur investment? Cut capital gains rates, too.

The AP covered the news conference this morning at the NAM on the new cost study, and the story gets right to the point. From “Global gap on costs narrows for US manufacturers“:

WASHINGTON (AP) — Costs that hamper the competitiveness of U.S. manufacturers have fallen in recent years compared with those of foreign producers, but high corporate taxes and other expenses still put domestic products at a distinct disadvantage in global markets, an industry group said Thursday.

The National Association of Manufacturers reported that structural costs, which include expenses such as health care, taxes and expenditures on environmental issues, have fallen since 2003 relative to the United States’ nine largest trading partners.

U.S. manufacturers now face a 17.6 percent disadvantage because of the structural costs, down from 22.4 percent in 2003, and 31.7 percent in 2006, according to the study comparing the U.S. with Canada, Japan, Germany, Korea and the United Kingdom.

NAM news release on the study is available here.

And the full 2008 cost study, “The Tide Is Turning: An Update on Structural Cost Pressures Facing U.S. Manufacturers,” is available at: www.nam.org/coststudy.

UPDATE Reuters, “High US corporate tax hurting manufacturer competiveness.”

An editorial in the Wall Street Journal, “The Stockholm Curve“:

With the economy struggling, at least some people are urging a pro-growth tax cut. Too bad they live in Stockholm. As a recent headline in Agence France-Presse put it: “Sweden Announces Income Tax Cuts to Boost Jobs.” The government is planning to cut business taxes and the personal income and payroll tax.

“The corporate tax is one of the taxes which large companies really study when they plan to set up business somewhere,” says Jan Björklund, leader of the country’s Liberal Party, in promoting the tax cut plan. The corporate tax reduction will bring the Swedish rate down to 26.3% from 28%, continuing its fall from a high of 57% in 1987. This means that Swedes will soon have a corporate tax rate one-third lower than the U.S. average of 39.5% (the 35% federal rate plus the state average).

Sens. Obama and McCain discussed corporate taxation in the presidential debate in Oxford. (Transcript)

McCain:

Right now, the United States of American business pays the second-highest business taxes in the world, 35 percent. Ireland pays 11 percent.

Now, if you’re a business person, and you can locate any place in the world, then, obviously, if you go to the country where it’s 11 percent tax versus 35 percent, you’re going to be able to create jobs, increase your business, make more investment, et cetera.

Obama:

What I do is I close corporate loopholes, stop providing tax cuts to corporations that are shipping jobs overseas so that we’re giving tax breaks to companies that are investing here in the United States. [snip]…

Now, John mentioned the fact that business taxes on paper are high in this country, and he’s absolutely right. Here’s the problem: There are so many loopholes that have been written into the tax code, oftentimes with support of Senator McCain, that we actually see our businesses pay effectively one of the lowest tax rates in the world.

We turn again to the Tax Foundation for analysis and commentary. 

Companies, like lobbyists, are an easy target when it comes to political speeches. “Taxing corporations” unfortunately makes for a good soundbite. But, a good policy maker knows that it’s not that simple. That’s why it was disappointing to hear Senator Obama launch an attack on “big corporations, oil companies…and companies that ship jobs overseas.”

The reality is that these very companies that Obama wants to tax are major contributors to our country’s economic growth. American manufacturers provide well-paying jobs for employees, investment opportunities for shareholders and high-quality products and services for consumers. Today, more than ever, manufacturers compete in a fiercely competitive global marketplace. In recent years, our trading partners have lowered their corporate tax rates making it harder for U.S. based companies to compete. Raising taxes on these companies won’t make them more competitive and it certainly won’t create more jobs. At a time when the economy is struggling to recover - we need policies that help companies expand and grow. Lowering - not raising - the corporate rate would be a good first step.

The Wall Street Journal opinion page recognizes the implications of the Tax Foundation’s latest report on corporate tax rates around the world. From “America the Uncompetitive“:

The new international tax rankings are out for 2008, and congratulations to Washington, D.C., are again in order. Our political class has managed to maintain America’s rank with the second highest corporate tax rate in the world at 39.3% (average combined federal and state).

Only Japan is slightly higher overall, though if you are silly enough to base a corporation in California, Iowa, New Jersey, Pennsylvania, or other states with high corporate levies, your tax rate on business income is even higher than in Tokyo. For the first time, the U.S. statutory rate is now 50% higher than the average of our international competitors, continuing a long-term trend as the rest of the world keeps reducing corporate tax rates.

The Journal also debunks the populist corporate bashing that accompanied the latest GAO report on corporate tax payments.

Last week Senator Byron Dorgan of North Dakota waved around a new politically generated study by the Government Accountability Office (GAO) finding that 28% of large U.S. corporations paid no income tax in 2005. “It’s time for big corporations to pay their fair share,” Mr. Dorgan roared.

Well, the Tax Foundation looked at those numbers and found that, among the large companies that paid no taxes, 85% of them also made no profits that year. American Airlines and General Motors escaped income tax for 2005 through the clever tax dodge of losing $862 million and $10.5 billion, respectively. How unpatriotic.

Read the whole thing, if you would.

The global competitive environment keeps getting tougher. Nine key trading partners cut their rates in 2007.

From the Tax Foundation’s Tax Policy Blog:

New Study: U.S. Corporate Tax Rate 50% Higher than Economic Competitors

by TF Staff

Tax Foundation President Scott Hodge this morning released the latest Tax Foundation Fiscal Fact in response to a new study from the Organisation for Economic Co-Operation and Development (OECD). The OECD study shows that for the 17th consecutive year, the average rate of corporate taxes in non-U.S. countries fell while the U.S. corporate tax rate stayed the same.

As a result of the U.S. failure to lower its corporate tax rate for more than two decades while other major trading nations lowered theirs, the U.S. corporate tax rate is now 50% higher than the OECD average. Nine key trading partners cut their rates during 2007.

Said Hodge:

Continued failure by U.S. tax policymakers to keep up with our top global economic competitors means that we’re solidifying a trend that will result in our children and grandchildren not seeing the economic growth we’ve seen in our lifetimes. There’s a real-wallet impact for Americans as we continue to sit idly by while other countries improve the way they do business, and we should be very concerned about jobs, capital, and investments moving from high-tax countries to low-tax countries.

Click here for the Tax Foundation Fiscal Fact. Click here for the press release.