Easing taxes on corporations benefits economy

As the U.S. economy pops its nose up out of the whirlpool of recession, every effort should be made to keep from going back under, for a “double dip” recession.

A major area of action should be the high tax rates paid by U.S. corporations. Although corporations are attacked for having “excess” profits, every dollar that’s taxed away is a dollar that doesn’t go to business expansion and jobs creation — indeed, nowadays, to simple business survival and jobs retention.

A new study by the libertarian Cato Institute found America’s effective corporate tax rate on new investments is the highest among the nations in the Organization for Economic Co-Operation and Development — 30 countries, including Mexico and Canada, with developed economies. The study is by Duanjie Chen and Jack Mintz of the School of Public Policy at the University of Calgary, Canada.

“The U.S. corporate tax system has become unwieldy, inconsistent with world practice, and highly anti-competitive,” the study found. “The statutory corporate income tax rate is one of the highest in the world at about 40 percent, which harms the economy and encourages companies to shift investment and profits abroad to lower-tax jurisdictions.”

Internationally, the 35 percent rate for the federal tax by itself compares badly with: Japan at 33.5 percent; Canada, 28 percent; United Kingdom, 27.5 percent; Germany, 24.4 percent; China, 16 percent; Mexico, 15 percent; Israel, 15.1 percent; and Singapore, 8.8 percent.

The average for 80 nations studied is 18.2 percent — about half the U.S. level. If you want to have nightmares, think of 1.3 billion Chinese diligently working and paying a corporate tax rate half of ours.

The only major nations with higher rates are India, at 35.7 percent; Brazil, 36.5 percent; and Argentina, 41.7 percent.

The high corporate tax rate “is extremely negative for business,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research and Anderson Chair of Economic Analysis at Chapman University. “This leads to companies leaving for somewhere else. They expand and create more jobs for other countries.”

However, he added, America’s rate isn’t quite as bad as the numbers indicate because of loopholes, so the “effective tax” on companies could be lower, depending on the individual business. To cut the effective rate, he said, companies can give donations to charities, create expenses to reduce profits and postpone expenses from one period to another.

But the loopholes cause another problem: distorting economic planning. “Any time you manipulate your production based on taxes, you create inefficiencies,” he warned.

The solution, he said, is to reduce the corporate tax rate and cut out the loopholes. Then companies can better compete globally, stay in America and create more jobs here.

The U.S. economy is nowhere near being back to strong, steady growth. A smaller, more rational corporate tax is essential to prosperity.