Thursday, July 19, 2007

Our Broken Corporate Tax Code

We now have, on average, the second-highest statutory corporate tax rate (including state corporate taxes), 39%, compared with an average rate of 31% for our top competitors -- the democratic, market-oriented nations that form the Organisation of Economic Cooperation and Development (OECD). (See chart above from 2003, click to enlarge. Note that Germany's rate is now slightly lower at 38%.)

Ireland, for example, has engineered its own economic miracle, in large part due to a reform program that cut corporate tax rates to a level one-third that of the U.S. And the trend continues. Germany will reduce its total rate from 38% to 30% in 2008. France, Japan and the United Kingdom have signaled they may also lower their corporate rates. China, though not an OECD member, has recently passed legislation that will unify domestic and foreign corporate taxes at rates substantially below the OECD average. This trend raises a crucial question policymakers should be asking: Are these countries learning a lesson that we have forgotten?

Read more here of Treasury Secretary Henry Paulson's editorial in today's WSJ, aruging for a reduction in U.S. corporate tax rates to help the U.S. economy remain competitive in a world of falling corporate tax rates.

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