Corporate Income Taxes ‘Absolutely’ Cost U.S. Jobs

The corporate tax rate in the United States is the highest in the developed world and places U.S.-headquartered corporations at a tremendous disadvantage in the global marketplace, according to a new report.

“The costly U.S. corporate tax structure is driving competitive, profit-seeking corporations to minimize their tax exposure and defer income overseas to lower-tax countries,” states the report from the Mercatus Center at George Mason University.

“Unless the United States reforms its corporate tax system, the country will fall further behind in global competitiveness.”

President Barack Obama has said the high tax rate “makes no sense and has to change,” and House Budget Committee Chairman Paul Ryan agrees that the tax system is stifling America’s fiscal goals.

“The President and Chairman Ryan are correct,” the report observes, adding that without an overhaul of the tax system, America “will continue to lose jobs to countries with lower taxes.”

The federal government’s corporate tax rate is 35 percent on corporations that earn profits of more than $18.3 million, and the effective tax rate — which takes into account all deductions and credits — is 29 percent.

In contrast, the average corporate tax rate in the 34 nations belonging to the Organisation for Economic Co-operation and Development (OECD) is just 23.4 percent, and their effective rate is 20.5 percent.

The only country with a higher corporate tax rate than the U.S. is Japan, but Tokyo plans to reduce its statutory rate by about 5 percent in the near future.

The tax rate is below 10 percent in Switzerland, below 15 percent in Ireland, and at or below 20 percent in 12 other countries, including Canada and Germany.

As recently as 1990, the OECD average rate was 41.1 percent, but since then rates have continued to fall while in the U.S. rates have stagnated.

The high rate in America encourages corporations to keep their profits overseas to take advantage of lower rates in other countries. That shifts billions of dollars in profits away from the United States, money that could be used to create American jobs.

In fact, during the 2000s major multinational corporations reduced U.S. jobs by 2.9 million while increasing employment overseas by 2.4 million.

“Not all of these jobs were cut and outsourced specifically because of the corporate tax system. But was that system a contributing factor? Absolutely,” the Mercatus Center observed.

The report concludes: “If the United States is to be competitive in the future, some level of corporate tax restructuring has to occur.

“To protect American jobs and secure future fiscal stability, the United States must slash its corporate tax rate.”