by Mitch Kokai
Senior Political Analyst, John Locke Foundation
U.S. corporate taxes are among the highest in the developed world no matter how one counts: The statutory rate (about 39 percent when state and local taxes are included) is the very highest in the developed world, and even if one measures the average effective tax rate of 29 percent or even the marginal effective tax rate of 18.6 percent, the U.S. still comes out at or near the top. This renders American businesses less able to compete globally.
Yet the proposed tax relief — which, even under the most ambitious GOP plans, would bring rates only to about the average for the developed world — don’t go far enough. If American leaders really want strong tax reform, they should eliminate the corporate-income tax altogether. Doing that ought to have appeal to groups on both the left and the right.
The most important fact about the corporate tax is that the paper documents and legal understandings that make up a corporation can’t literally pay taxes themselves. A corporation asked to pay a tax will always have to respond by reducing wages to workers, raising prices for customers, reducing returns to investors, or some combination of the three.