The world economy has changed enormouslysince the last comprehensive reform of thecorporate tax system in 1986. Rising incomesand new market-based economies around theworld have created vast growth opportunitiesfor American companies and American workersto provide goods and services to billions of newconsumers. At the same time, American companiesand American workers face significant newcompetition in markets at home and abroad. TheU.S. tax system has failed to keep up with thedemands of a modern, global economy and nowhinders American competitiveness. Tax reform isneeded now.
The U.S. combined statutory corporate tax ratestands at 39.2 percent, now the highest in theOrganisation for Economic Co-operation andDevelopment (OECD) after Japan reduced itscorporate rate this year. This U.S. statutory rateis more than 50 percent higher than the 25.1percent average corporate tax rate in the rest ofthe OECD in 2011.
Economic studies indicate that as much as 45percent to 75 percent of the corporate tax burdenis borne by labor, in the form of lower wages.
This linkage was recently acknowledged in theyear-end report of the President’s Council on Jobsand Competitiveness.
The high rate is not the only problem, as theUnited States is the only G-8 country thatstill taxes the worldwide income of businessesheadquartered in America. Among the 34 OECDcountries, 26 use a territorial tax system, whereby little or no additional home country tax is imposed onactive trade or business profits earned abroad when those earnings are remitted home.
The U.S. worldwidesystem of taxation significantly magnifies the damage done by the high U.S. corporate tax and significantlyimpairs American businesses competing in world markets.
Among its major trading partners, the United Stateshas the highest combined statutory corporate taxrate.
I r e l a n d T u r k e y C h i n a U n i t e d K i n g d o m U n i t e d S t a t e s
Combined Statutory Corporate Tax Rates
C a n a d a M e x i c o G e r m a n y F r a n c e J a p a n *
*Effective April 1, 2012
Source: OECD Tax Database, Table II.1 and PricewaterhouseCoopers LLC (December 2011)
In 2010, American companies generated nearly 25cents of every dollar of earnings from operationsoutside the United States.
Foreign Earnings of American Companies
Source: U.S. Department of Commerce, Bureau of Economic Analysis