U.S. Corporate Tax Rate – Highest in the World?

Posted by Kelley LearcloseAuthor: Kelley Lear Name: Kelley Lear
Email: kelley.lear@redmoonsolutions.com
Site: http://blog.redmoonsolutions.com
About: Kelley is a member of the executive leadership team and leads our sales and marketing efforts at Red Moon Solutions. Kelley’s extensive experience in project management, product management, and consulting with Fortune 500 and Global 1000 clients is extremely important in this role.See Authors Posts (127) on Mar 16, 2011 | 0 comments

Well. We’ve finally done it. We’ve reached the top… but not in a good way. According to a recent news release published by the Tax Foundation,  the U.S. corporate tax rate will soon become the highest in the world. ! Honestly though – is it a surprise? For over 20 years, the U.S. corporate tax rate has been higher than the OECD average for similar nations.

However, what IS surprising is that while the U.S. continues to increase the corporate tax rate, several countries have cut their corporate tax rates considerably. A few of these countries include: Germany, Ireland, Canada and Iceland. What are they experiencing? Economic growth, new jobs, advancement in the global economy …
Aside from the negative impact that the U.S. corporate tax rate has on the economy and the creation of new jobs– we are essentially moving backwards in the global marketplace.

According to the article – U.S. Corporate Tax Rates Soon to be #1, Scott Hodges (President of the Tax Foundation) states,

“United States companies are now in the position of trying to compete in the 21st century world economy with a 20th century tax system. Dozens of countries around the world—including many of the United States’ closest trading partners—have realized that sky-high corporate tax rates are an economic dead end. Now more than ever, Americans want to see policies that will help create increased growth, more jobs, and higher standards of living – exactly the things that a lower and more streamlined corporate tax system can help achieve.”

Furthermore – the cost of U.S. corporations to adhere to, plan for and comply with Federal and State corporate tax law is enormous. This is a significant expense to corporations in terms of headcount, systems, manual effort, and overall corporate risk. In addition, cash flow is affected through higher reserves, higher ETR’s and audit penalties and interest.

I believe that in order to make progress – we have to find a balance. I agree with the point Scott Hodge makes in his article – that we need to get the corporate tax rate somewhere around the China model. In his podcast and post “Corporate Tax Reform Does NOT Have to be Hard,” Jim Shedivy makes several excellent points – and I agree with his idea to adopt some of Canada’s principles.

We definitely need to simplify and/or eliminate loopholes, tax credits and incentives and reduce the constantly changing tax laws put forth for political gain. If we could get closer to a flat tax methodology where states agree to follow federal rules, but still set their own rates, we would definitely be headed in the right direction.

We’ve been talking a lot about Corporate Tax Reform lately – and the ways in which we think it would be most effective. What are your thoughts? While opinions may vary greatly – we want to hear your voice. Share in the comments below!