America: No. 1 and Gaining in . . . Corporate-Tax Oppressiveness

by Patrick Brennan

You probably knew that the U.S. has the highest top statutory corporate-tax rate in the world (an honor it’s held for three years running – it used to be just barely topped by Japan). But you may not have known that its position has gotten substantially worse relative to its competitors over the past few years, as countries around the world are cutting their corporate-tax rates to increase competitiveness, even in an age of austerity.

Here’s a chart showing the top corporate rate in some of the world’s largest wealthy economies, with the U.S. in the stratosphere in light blue:

The chart comes from Brian Williams of the Motley Fool, a personal-finance website. The top statutory federal rate in the U.S. is 35 percent, but KPMG, from which the above data is drawn, deems 40 percent the right top rate because it takes into account an average of state corporate taxes.

The above chart is about to get worse, too: Japan, America’s closest competitor in the race for the highest corporate rate, is planning to cut its corporate rate again as part of Prime Minsiter Shinzo Abe’s “Abenomics” reform package, bringing the rate below 30 percent.

Japan is pursuing a growth-oriented package of reforms but also has huge deficits to worry about — as do a number of other countries on the above chart.

Few American corporations, of course, pay anything like a 40 percent corporate-tax rate — though as one example, large financial-services companies often do — because of the huge tax preferences embedded in the corporate tax code. (Here’s a breakdown from the New York Times of effective rates paid by various companies and industries.) With an exceptionally high rate, the U.S. corporate tax garners a whopping 9 or 10 percent of the federal government’s revenue every year. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.