Wednesday, December 28, 2005
Interesting editorial in today's Wall Street Journal, Let's Make a Deal:
When Ronald Reagan started his revolution in tax policy almost 25 years ago, he set off a benign chain reaction as tax rates fell around the world. OECD data show that the industrialized nations followed the U.S. lead and have cut their most punitive tax rates by about 30% on average since 1985.
We mention this history because two reports -- by the Congressional Budget Office [blogged here] and the nonpartisan Tax Foundation [blogged here] -- have sobering news about America's current tax standing in the world. Bluntly: Many countries not only have caught up with the U.S. in lowering taxes, in some areas they are beating us at our own game. America now imposes the highest corporate income tax rate among the 30 wealthiest countries. Once the Michael Jordan of tax cutting, we're now the Chris Rock, a joke. As the nearby table shows, the U.S. combined state and federal corporate tax rate of 39.3% is 10 percentage points higher than the OECD average.
We wonder if there isn't a left-right deal to be made here: Broaden the base by eliminating special-interest preferences, but lower the rate to make America's companies that do pay the tax more competitive....
There has been a great hullabaloo in recent years about so-called "Benedict Arnold" companies (in John Kerry's phrase) that move facilities offshore to Bermuda, the Cayman Islands and other international tax havens to avoid paying U.S. taxes. That happens because a company incorporated in the U.S. is automatically obliged to make Uncle Sam a one-third shareholder by paying the first 35% of all profits in taxes....Ironically, those in Congress who moan about offshore investing and "out-sourcing jobs" are the biggest defenders of America's highest-in-the-world corporate tax rates. Instead, Congress should be doing more corporate tax cutting. The clear beneficiaries would be U.S. firms and their American workforce.