Cutting the Corporate Tax Rate
Treasury Secretary Hank Paulson hit a home run today with this op-ed ($) in the Wall Street Journal. Excerpt:
In 1986, President Ronald Reagan in tandem with the Democratic House and Republican Senate reformed and simplified the tax code, reducing the number of brackets, closing loopholes and lowering individual and corporate rates. The U.S. moved from a country with above-average corporate tax rates to one with below-average rates. The Reagan tax reforms set the stage for 20 years of remarkable economic performance in the U.S. and around the world, what Ronald Reagan called "The American Miracle."
Twenty years later, after much of the world has followed our lead, the U.S. is once again a high corporate tax country. We now have, on average, the second-highest statutory corporate tax rate (including state corporate taxes), 39%, compared with an average rate of 31% for our top competitors -- the democratic, market-oriented nations that form the Organisation of Economic Cooperation and Development (OECD).
[...]Over the past two decades, while U.S. tax law has grown more complicated and our statutory corporate income tax rate has increased, other nations have been reducing their rates to replicate our miracle. A study by Treasury economists estimated that a country with a tax rate one percentage point lower than another country's attracts 3% more capital. It's not surprising then, that average OECD corporate tax rates have trended steadily downward.
Maintaining our competitiveness in today's global environment requires us to think comprehensively and act prudently. As Europe's biggest economies and developing nations around the world move to reduce corporate taxes and gain the benefits for their workers that U.S. workers already enjoy, now is an opportune time, when our economy is in a position of strength, to consider ways our business tax system can be improved.
Cutting the corporate tax, or better yet eliminating it, would act like rocket fuel for the economy. It's high time that we do it.
