US takes OECD lead in tax rate on corporations

Bob Tippee

Effective Apr. 1, the US assumes a position of regrettable leadership in the developed world.

As of that date, it has the highest combined state and federal corporate tax rate among the industrialized countries that constitute the Organization for Economic Cooperation and Development.

The US achieves this dubious distinction when Japan, in line with a global trend, lowers its overall rate of corporate taxation to below 35%.

The US federal-state rate, according to Tax Foundation Pres. Scott A. Hodge, is 39.2%.

Most countries have been lowering tax loads on corporations. The simple average rate of non-US OECD countries fell below the US rate in 1992 and has dropped since then to 25.5% from 38%.

The non-US weighted average for OECD countries, reflecting country size, fell during that period to 30.1% from 42.5%, slipping below the US rate in 1998.

Those figures exclude changes made or scheduled this year.

In addition to Japan’s move, Canada lowered its corporate tax rate to 16.5% from 18% on Jan. 1. The UK rate will drop to 27% from 28% in a program to phase the rate down to 24% by 2014.

In a Mar. 8 report, Hodge says 75 countries have cut corporate tax rates since 2006.

Asia illustrates the competition. Countries of that region cutting corporate tax rates since 2006 include China, to 25% from 33.3%; Vietnam, to 25% from 28%; and Taiwan, to 17% from 25%.

“No doubt, these Asian trends are a factor in Japan’s decision to lower its own rate,” Hodge says.

Will the US, like Japan, feel the pressure and respond? Opponents of rate cuts will warn of lost tax collection by the government. But Hodge points to offsets.

“It is safe to assume that a meaningful reduction in the US corporate rate would result in more corporate profits remaining within the country while encouraging more investment from abroad,” he says. “These two factors alone could minimize the static revenue losses associated with a lower rate.”

(Online Mar. 25, 2011; author’s e-mail:

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