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| Economy |
| A Tax To Grind |
| 2009-11-15 |
| The average tax rate assessed to corporations worldwide has fallen 10 years in a row, but the U.S. isn't driving the trend. Policymakers in the most advanced economy continue to punish their constituents. Washington refuses to cut the corporate tax rate. It has languished for more than a decade at roughly 40%, when state and local corporate taxes are figured in, KPMG reports in its 2009 Corporate and Indirect Tax Rate Survey. Republican administrations with GOP majorities in Congress, Democratic White Houses with Democrats in control of the Capitol, split governments -- it doesn't matter. The U.S. corporate rate has acquired a stubborn staying power while globally, until this year at least, "corporate taxes have been driven steadily down," says KPMG. A nation's corporate tax rate is important. Its effect on a country's competitiveness and its ability to draw or repel investment has a direct impact on economic health. "High tax rates deprive companies of both the means and the incentive to take advantage of new market opportunities or technological changes that can improve productivity," wrote Terry Miller, director of the Heritage Foundation international economics center, and policy analyst Anthony Kim, in a memo the center published last year. "In a business environment where capital flows are extremely mobile, lower tax rates do matter in attracting more business investment," they added. They certainly mattered in Ireland. Once a laggard, it became the economic jewel of Europe in the last decade by attracting business through cuts in its corporate tax rate. Slashing the rate -- now 12.5% -- pulled the nation out of the mire in the 1990s and trimming it again would turn around its current economic difficulties. While the U.S. has not moved its corporate tax rate, there has been an effective tax increase in this country as other nations have lowered theirs. On these pages two years ago, J.T. Young, a frequent IBD contributor who has served both at Treasury and the Office of Management and Budget, wrote that the competitive advantage the U.S. once enjoyed has narrowed over the last two decades as other nations cut their corporate tax rates. A few years previous to Young's observation, researchers Young Lee and Roger H. Gordon noted "that increases in corporate tax rates lead to lower future growth rates within countries." |
| Posted by:Fred |