Compared to apex 35 industrialized countries, the United States has a distinction of having third highest rates of corporate income tax. According to Organization for Economic Co-operation and Development or OECD, the American corporate tax is about 16.4 percentage points more than the 22.5 percent world average. It is a tad higher than the nine percentage poiints compared to the international GDP weighted 29.5 percent average.
The fact is that the median tax rate all over the world has declined over past ten years. This has further divided the US from other nations. About 75 nations impose rates of corporate tax which come anywhere within zero percent and 20 percent.
US and the tax dilemma
Such high tax rates place the US in a dilemma, as it encounters stiff competition when it comes to attract domestic business investment. Corporations are encouraged by higher tax rates to transfer their operations abroad. They do not invest in US businesses as a result. To give an example, Medtronic, an American company, transferred their Minneapolis based operations to Ireland after they bought Covidien. Many other companies have done likewise, inlcuding pharmaceutical giant Pfizer and social media behemoth Facebook. Many automobile companies have shifted opwerations to Mexico.
The present tax rate imposed by the Federal Reserve on income made by profitable companies comes to 35 percent. Canada, in comparison, charges 15 percent. China, Germany, Ireland, Japan and Korea charge 15 percent, 12.5 percent, 23.9 percent and 22 percent respectively. The US can be compared with not-so-good economies like Argentina and Belgium with 35 percent and 33 percent respectively.
Huge tax burden
Moreover, when the local and state taxes are added, the actual Americal corporate tax rate comes to 39 percent. This figure is exceeded only by two countries- the United Arab Emirates and Chad. The median rate for 173 nations is only 22.9 percent. It has actually declined from the 30 percent in 2003.
When corporations go abroad due to such payment of high taxes, then the jobs get transferred as well. No government wants that. A high corporate rate of tax also harms the US Treasury. If companies leave earnings from overseas ventures out of the US, there is no requirement to pay US taxes. These taxes get deferred until the earnings are repatriated to the US. It is no wonder companies are not interested in repatriating what they have earned. The only solution is to cut the tax rate to approximately 15 percent.