Cato Scholars Urge US To Embrace Global Tax Revolution

by Mike Godfrey, Tax-News.com, Washington

16 September 2008

The United States is being challenged to lead the way on global tax competition in a new book by the Cato Institute, which adds to a growing body of opinion among tax and economic experts that the US is getting left behind by other developed and developing nations in the global race to attract skills and investment.

The book 'Global Tax Revolution,' by Cato scholars Chris Edwards and Daniel Mitchell, charts the progress of tax reform globally in recent decades, and highlights how tax policy has been used by governments as an instrument to transform economies, such as in Ireland where the corporate tax rate was slashed and the 'Celtic Tiger' emerged.

Edwards and Mitchell argue in the book that tax competition is a force for good which is advancing prosperity, expanding human rights, and reining in bloated governments. They point out that governments which remain resistant to this force are holding back the citizens and businesses whose interests they claim to represent, in the process stymieing economic growth. "High-tax" France, which has seen a substantial brain-drain of successful people, is cited as one prime example.

The authors also posit that the US economy can be revitalized by embracing competition and overhauling the federal tax code. They discuss how current tax rules suppress wages and investment and describe the tax changes needed for workers and businesses to succeed in the fast-paced global economy.

The book contends that, while lawmakers and lobbyists continue to bemoan the fact that capital and jobs are being shipped offshore to take advantage of lower tax rates and lighter-touch regulatory regimes, little is being done by policymakers to actually bring about the tax reforms needed to reverse this trend.

In terms of corporate tax competitiveness, the US is now second only to Japan as the nation with the highest corporate tax rate. As a result of the US failure to lower its corporate tax rate for more than two decades while other major trading nations lowered theirs, the US corporate tax rate is now 50% higher than the OECD average. Nine key trading partners cut their rates during 2007.

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