Cato Report Says Effective Corporate Tax Rates In The US Are High And Damaging

See New Estimates of Effective Corporate Tax Rates on Business Investment by by Duanjie Chen and Jack Mintz, School of Public Policy, University of Calgary. Excerpts:

"We find that the U.S. effective corporate tax rate on new investment was 34.6 percent in 2010, which was the highest rate in the OECD and the fifth-highest rate among 83 countries. The average OECD rate was 18.6 percent, and the average rate for 83 countries was 17.7 percent."

"New findings emerging from academic tax literature point strongly to the advantages of tax rate reductions for corporations. One finding is that when considering the efficiency characteristics of different taxes, corporate income taxes are the most distortive, and hence the most harmful for economic growth.5 Reductions in corporate tax rates can help boost domestic investment and spur inflows of foreign invest.

Another finding is that corporate tax rate cuts in high-rate countries will probably not cause substantial revenue losses. Instead, in a global economy, aligning a nation’s corporate tax rate with the international average rate or less is important to protecting the tax base. Keeping the corporate rate competitive helps avoid “income shifting” by multinational companies from high-tax to low-tax jurisdictions.7 Accordingly, there is less concern today about corporate tax rates “racing to the bottom.” Rather, countries that are major trading partners often reduce their rates together over time, and all countries gain as the efficiency of tax systems are increased.

A third message from recent studies is that corporate tax rate reduction should be accompanied by base broadening, but it should not be constrained by demanding corporate “revenue neutrality.” Broader tax bases can raise a particular amount of revenue to support lower tax rates. But the purpose of base broadening should be to enhance tax neutrality, which allows businesses to make efficient decisions that reduce the misallocation of resources and minimizes tax planning and administration. Countries should avoid special tax breaks for particular industries or segments of business."