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US Drops Further Behind In Corporate Tax Race

by Mike Godfrey, Tax-News.com, Washington

07 August 2009

The trend towards lower corporate tax rates continued in several countries around the world this year, distancing the United States even further from the pack with its combined federal and state rate of 39.1%.

Canada, the Czech Republic, South Korea, and Sweden all cut their corporate tax rates in 2009, and the US remains second only to Japan for the highest corporate tax rate among nations in the Organization for Economic Cooperation and Development (OECD).

A Tax Foundation analysis of new OECD data finds that 2009 marks the 12th consecutive year in which the US corporate tax rate is higher than the average rate among non-US OECD nations—and roughly 50% higher than that of a mid-ranked country such as Sweden.

"America's high corporate tax rate should be a red flag to US lawmakers worried about the country's flagging economic growth, slow wage growth, and our overall global competitiveness," write Tax Foundation President Scott Hodge and Summer Fellow André Dammert in the report ‘US Lags While Competitors Accelerate Corporate Income Tax Reform.’

South Korea enacted the largest rate cut this year of 3.3% points, followed by Sweden and Luxemburg, which cut their rates by 1.7% and 1%, respectively.

Even the UK, which has seen a flurry of corporate defections over a perceived lack of certainty in its corporate tax regime, is transitioning toward a more ‘territorial’ tax system that taxes firms only on the profits earned within the country's borders, the Foundation finds. By contrast, the Obama administration is seeking to raise more than USD220bn in new corporate taxes by making the US world-wide tax system tougher.

"US lawmakers must take note of these global trends and take steps to make the US corporate tax system competitive with its major trading partners," Hodge and Dammert conclude. "If they don't, we risk continuing to fall behind in the global race to attract capital, jobs, and economic growth."

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