Economics, Pethokoukis, Taxes and Spending

So why aren’t we cutting corporate tax rates?

What could the Obama White House have been doing in 2009 and 2010 other than pushing healthcare reform? How about reforming America’s uncompetitive corporate tax code? That could have been a huge pro-growth move. Still hasn’t happened.

Over at RealClearMarkets, Diana Furchtgott-Roth shows her frustration:

Senate Finance Committee Chairman Max Baucus’s tax reform speech on Monday to the Bipartisan Center, a Washington think tank, indicted the American tax system. Too bad the Montana Democrat didn’t propose specific remedies.

Mr. Baucus aptly identified many of the problems that have accumulated in the federal tax code.

In contrast to other industrial economies, competitors to the United States, Mr. Baucus said, “the U.S. has one of the highest statutory corporate tax rates in the world. We give countless tax breaks to business, but many don’t attract or retain investment.”

Corporations pay a top tax rate of 35 percent on taxable income. Of course, how taxable income is calculated matters. Average effective tax rates, taxes paid divided by gross income, are lower. But what matters for investment decisions are marginal effective tax rates, the tax rates paid on the last dollar of income.

Mr. Baucus pointed out, disapprovingly, that Washington taxes companies on their worldwide income rather than on income they generate in the United States. As a result, he lamented, we’re losing revenues to tax havens and jobs to foreign companies.

Alas, the 70-year old senator, a member of Congress since 1973 and now the vice chairman of the Joint Committee on Taxation, offered no proposals to lower rates.

This is a policy no brainer.  AEI’s Kevin Hassett and Aparna Mathur:

By our calculation, the US statutory rate is nearly 10 percentage points higher than the effective average rate and nearly 17 percentage points higher than the effective marginal tax rate. Relative to other OECD countries, the United States is one of the worst performers on this score. The effective average tax rate for all OECD countries excluding the United States is 20.6 percent, while the effective marginal tax rate is 17.3 percent. The corresponding values for the United States are 29 percent and 23.6 percent.

One thought on “So why aren’t we cutting corporate tax rates?

  1. Couldn’t agree more! Lower corporate tax rates could bring this country the biggest influx of jobs and capital this country has ever seen. I don’t see why Washington is ignoring this simple fact when it could cause huge economic stimulation.

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