Friday, December 27, 2013

Businesses Export Jobs Because of High US Corporate Tax Rates

Giving US businesses an incentive to re-locate operations and jobs overseas is the last thing that we need.  That would have the effect of exporting jobs.  But this is exactly what has been happening for years due to high marginal US corporate tax rates of over 38% -- the highest in the world.

The problem is that other countries have been lowering their corporate tax rates for years, leaving the US with the highest rate.  The US now has the highest corporate tax rate in the world.  Even Japan is set to lower it's tax rates.  And, for a decade or more, jobs have been streaming overseas to Ireland, Asia and the rest of the OECD!   And you wander why the US economy has chronic anemia?  This is the answer to that question.  See the following charts from Tax Foundation:

 


Japan is Considering Lowering Their Corporate Tax Rates Leaving US Corporate Tax Rates an Outlier

It's true the "effective" US corporate tax rate is quite low at 13.4%, but this is because businesses have already relocated overseas.  Companies have effectively taken advantage of the prevailing tax codes.   The effective foreign tax rate on US company's overseas subsidiaries is about 14%.   The US tax code also does not require companies to pay US taxes on profits until that money is repatriated.  This means that 100s of billions of dollars are accumulating overseas and benefiting overseas locations---not the US.  It stays there because it's treated better than in the USA.

FYI, here's the chart of world-wide effective corporate tax rates:
 

If you want to remove an incentive for US business to locate overseas and to encourage repatriation of jobs from Asia and other locations, then lower the US corporate tax rates and reform the tax code.  It's the most obvious thing in the world but our government is frozen in inaction.  A new rate of 14 to 15% would be similar to the corporate tax rate in prosperous countries like Singapore and, up until recently, Ireland to name a few.

Add high corporate tax rates to the 1001 reasons that our economy and job growth is anemic.

1 comment:

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