TAX NEWS - June 2010

Excessive corporate taxation

Tax Foundation president Scott Hodge blogs on the United States' possible ascendancy to the country with the highest corporate tax rate in the world.

It is well known that the U.S. has the second highest corporate income tax among the major industrialized countries at more than 39 percent when the federal and average state rates are combined. Only Japan has a higher overall rate at nearly 40 percent.

That soon could change. Reuters is reporting that Japan's ruling Democratic Party will include a corporate rate cut in its platform for the upcoming upper house elections.

Should Japan cut its corporate income tax rate, the U.S. would find itself with the highest corporate tax rate in the industrialized world. The U.S. would also stand alone as one of the last remaining OECD nations to impose a world-wide tax system on corporate profits. Last year, both Japan and the United Kingdom took steps to exempt foreign earned profits from domestic taxation in order to stem the flight of capital out of their respective nations.

Excessive corporate taxation (or any taxation that targets investment capital) is the economic equivalent to the arcane medical practice of leeching. In an attempt to provide prosperity to Americans, the U.S. government drains job-providing businesses of their lifeblood, which is capital. When subjected to excessive taxation, not only do corporations have less capital to invest in innovation and job creation, they are more likely to relocate to a country with lower taxes – or, at least, set up new facilities and/or subsidiaries in those countries. If our economy is ever to return to its former glory, it is economically insane policies such as this that must become memories. It may be a long road to ruin, but we're getting there.