US States Lead World In High Corporate Taxes

bu Mike Godfrey, Tax-News.com, Washington

28 March 2008

A new study from the Tax Foundation, a nonpartisan tax research group in Washington, shows that most American states tax companies at a higher rate than any other country in the developed world.

"This is startling news for America's businesses and workers," commented Tax Foundation president Scott Hodge, the study's author.

"Tax competition for jobs and investment is fierce, and the US continues to fall further and further behind. Our states should be the world's leaders in many things, but high taxation should not be one of them. The high federal corporate tax rate is literally crushing states' competitive abilities. That means fewer jobs for American workers," he added.

Counting the federal rate alone, the US has the world's highest corporate tax rate, but including average sub-national rates (federal plus state in the US), Japan, with a combined rate of 39.54%, edges out the US for the highest-tax location.

This new study breaks the tax down state-by-state, adding each state's corporate tax rate to the federal corporate tax rate. The results show that: 24 states impose, when combined with the federal rate, a higher business tax rate than in any other nation; 32 states have a combined corporate tax rate higher than third-ranked Germany; 46 states have a combined corporate tax rate higher than fourth-ranked Canada; and all 50 states have a combined corporate tax rate higher than fifth-ranked France.

"If federal lawmakers are serious about making the US corporate tax system more competitive globally, they will have to partner with state officials to lower the nation's overall corporate tax burden," Hodge added.

"Likewise, state officials should have a vested interest in cutting the federal corporate tax rate because there is only so much they can do to improve their own competitiveness."

After all, even corporations in the three states that do not impose a major state-level corporate tax — Nevada, South Dakota, and Wyoming — still shoulder a higher corporate tax rate than France, and 25 other major countries, because of the 35% federal corporate rate," he observed.

The state of Iowa topped the Tax Foundations's corporate tax table with a combined rate of 41.6%. Pennsylvania (41.5%), Minnesota (41.4%), Massachusetts (41.2%), Alaska (41.1%) and New Jersey (41.1%) all have a combined corporate tax rate of more than 41%. California came in 11th with a combined rate of 40.7%.

At the other end of the table, Texas has the lowest combined corporate tax rate at 36% (excluding those states that do not impose their own corporate tax), followed by Alabama (37.8%) and Colorado (38%).

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