Writing in his latest Tax and Budget Bulletin, Daniel J. Mitchell, Senior Fellow at the Cato Institute, warned that the United States will soon have "the most unambiguously punitive business tax regime among the advanced economies" unless it begins to close the growing corporate tax gap with its competitors, particularly in Europe.

"Europe is on a corporate tax-cutting binge, with rates falling substantially since the 1990s," Mitchell observed. "According to a recent survey by KPMG, the average corporate tax rate in the EU has fallen from 38% in 1996 to 24% in 2007. Data from the European Commission confirm the cutting trends in the EU’s 27 member nations."

Mitchell added that this trend shows little sign of slowing, with corporate rate cuts being implemented in Germany, Estonia, Spain, and the United Kingdom, and rate cuts being discussed in the Czech Republic and France.

He noted however, that the corporate tax cut trend is not just confined to Europe, as New Zealand seeks to cut its corporate tax to match Australia's 30% rate, while Singapore is readying a 2% corporate tax cut to 18%. Canada is also planning a 2% corporate tax cut, and Russia is mulling a 4% cut.

By contrast, Mitchell points out that America's corporate tax burden has remained static since the tax reform enacted under the Reagan administration in 1986.

"Our corporate tax advantage has become a big liability," he wrote. "Indeed, US policy moved in the wrong direction in 1993 when President Bill Clinton pushed the federal corporate rate up to 35%. With the addition of state-level corporate taxes, America's average corporate tax rate is 40%."

Mitchell added that all European countries now have lower corporate tax rates and generally better corporate tax systems than the US - "even the bloated welfare states of France and Sweden".

The average corporate tax rate across Europe has dropped by 14% since the mid-1990s, meaning that the European average is now 16% lower than the US corporate tax burden.

Mitchell pointed to a number of studies which have shown that the US tax code is "hostile to investment." A 2006 study by tax scholar Jack Mintz for Canada’s C.D. Howe Institute concluded that US investments faced the second highest effective tax rates, while a World Economic Forum study claimed that the US languished in 107th place out of 117 nations in terms of tax efficiency.

"The US corporate tax system is an anachronism that discourages growth and undermines job creation. High tax rates are driving jobs and investment abroad," Mitchell argued.

"The good news is that other nations are providing valuable reform lessons for American policymakers. Places such as Ireland, Estonia, Hong Kong, and Switzerland illustrate that lower tax rates boost growth and improve tax compliance," he noted.

Mitchell concluded that the US corporate tax system needs "radical improvement".

"The longer that policymakers wait to cut the corporate tax rate, the greater the likelihood that the geese that lay the golden eggs will fly across the border," he warned.