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The Resource for the Global Finance Profession

U.S. Officially has the Highest Corporate Tax Rate in the World

  • By Jeanine H. Arnett, Director, Government Relations & Public Policy, AFP
  • Published: 2012-04-02

On April 1, the United States earned a unique distinction in the area of corporate taxes—our country became the one nation in the entire world to have a corporate tax rate in excess of 39 percent. The U.S. earned this distinction when Japan cut its corporate tax rate to 36.8 percent from 39.5 percent—a change that took effect on April 1. With this move, the United States holds the title of having the highest corporate tax rates, with an average combined federal and state tax levy of 39.2 percent.

Companies in Japan urged the government to lower the country’s effective corporate tax rate to stimulate investment and to encourage businesses to create more jobs. It is estimated that lowering the corporate tax burden five percent could increase Japan’s gross domestic product 2.6 percent points, or 14.4 trillion yen ($172 billion), over the next three years, according to Japan’s Trade Ministry.

This move, which was delayed by last year’s earthquake and tsunamis, is the first step, and will be followed by another 2.3 percent drop in three years. Japan, however, is not the only country in Asia taking this type of action—South Korea has cut its top corporate rate to 22 percent, Taiwan to 17 percent and Thailand is moving to 20 percent over the next two years.

In a global market where capital flows across national borders easily, capital will gravitate toward those countries with lower corporate tax burdens, harming economic growth in the U.S. Therefore, AFP strongly encourages changes to the corporate tax system that will allow the U.S. economy as a whole, as well as American companies, to compete effectively in a global economy.

Tax policy that harms the competitiveness of the U.S. will only encourage companies to further expand their investment and hiring in other countries. Therefore, AFP strongly encourages policy makers to consider comprehensive changes that would improve the competitiveness of the U.S. markets and American companies by taxing earnings, both foreign and domestic, at rates that are comparable to those of other developed nations. Over time, the structural disadvantage resulting from higher tax burdens will be detrimental to U.S. businesses and will reduce their investment, employment levels and profitability both domestically and internationally, even as foreign companies exploit their lower tax burden to lower prices, capture market share and reinvest a larger portion of their profits into future growth.

At the beginning of this Congressional session in January 2011, AFP embarked on an aggressive, ongoing campaign to encourage Members of the 112th Congress to consider legislation that would implement a permanent change to the tax code to allow U.S. companies to compete for investment of their earnings with other countries that tax those earnings at significantly lower rates. Since then, we have continued to participate in activities with various coalitions and groups dedicated to enacting repatriation tax reform as individuals on and around Capitol Hill continue to debate the issue.

AFP Advocacy at work

One of the over-arching goals of AFP Advocacy is to raise the stature and visibility of our profession by consistently working to influence policymakers and opinion leaders on issues relevant to our members. One of the ways we do that is through the Government Relations Committee (GRC). This past March, GRC members met face-to-face with officials and senior staff at the Treasury Department, Senate Banking Committee, Senate Finance Committee, House Financial Services Committee and the House Ways and Means Committee to address the changes needed to the corporate tax structure in an effort to share the perspective of the profession and engage in deliberative debate.

AFP members met with Congressional Tax Counsel to encourage them to consider changes to the tax code that would improve the competitiveness of the U.S. economy and American companies by taxing earnings, both foreign and domestic, at rates that are comparable to those of other developed nations.

We would like to hear from YOU! Click here to share your views on the current corporate tax debate and tell us how your organization is responding. AFP’s Advocacy team may follow up to see how we can incorporate your perspective into our advocacy efforts.

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All rights reserved.

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