The United States is now, officially, the worst place to do business in the developed world. On Sunday, Japan lowered its corporate tax rate in the hopes of luring business to its shores, handing the title of highest tax rate to the Land of the Free. The market reaction on Monday will tell whether money will begin flowing away from us and toward the more business-friendly Asian country.
Japan’s combined corporate tax rate went down from 39.8 percent to 36.8 percent on its way to 34.5 percent within a few years. The U.S. federal rate is 35 percent and the average state and local levy on corporations is 4.2 percent, raising our total burden 2.4 points above that of Japan. When dealing with profits in the millions and billions, a few percentage points in the wrong direction can drive a company and its investments elsewhere.
Other allies have already figured this out. Canada cut its overall rate to 25 percent on Jan. 1. Just last week, George Osborne, Britain’s chancellor of the exchequer, announced that he is accelerating and deepening a corporate tax cut, lowering it to 24 percent in April and 22 percent by 2013. That means American businesses are at a significant disadvantage in the global marketplace.
Congressional Republicans have been pushing hard to increase our competitiveness, but they have no negotiating partner in the White House.
“It’s unfortunate because we really aren’t getting any leadership from the president on this at all,” Sen. Orrin Hatch, the ranking member of the Senate Finance Committee, told The Washington Times. “He’s punted it to the Treasury Department and what they’ve put out isn’t really much more than an outline.” In February, Treasury Secretary Timothy Geithner released a white paper that called for lowering the federal rate to 28 percent, but they have made no further effort to engage the tax-writing committees.
The administration also opposes moving to the global-standard territorial system, which would relieve American companies of having to pay Uncle Sam the difference in tax for profits earned overseas.
“Virtually every one of America’s global competitors has already moved from a ‘worldwide’ to a ‘territorial’ system of taxation, the high corporate rate makes America an even less attractive place to do business,” House Ways and Means Committee Chairman Dave Camp told The Washington Times. “If we are going to unlock our potential for growth and become more competitive - both domestically and globally - we have got to enact comprehensive tax reform that lowers rates and addresses the needs of all job creators.”
The Heritage Foundation estimates lowering the corporate rate to 25 percent would create an average of 581,000 new jobs annually over the next decade. The House on Thursday adopted a budget that calls for eliminating preferences and loopholes to reach that low 25 percent figure, which is the average for the developed world. Republican presidential candidate Mitt Romney wants to do the same.
Whether we see those jobs depends a great deal on who’s in the Oval Office next January. As Mr. Hatch said, “When Reagan was president, it took him three years to overhaul our nation’s tax code - he wouldn’t stop talking about it, negotiating, working to make it a reality. We don’t see anything like that from this White House. I hope that changes, but I’m not that optimistic with this president in the White House.”
Emily Miller is a senior editor for the Opinion pages at The Washington Times.