Much of the new issue of Bloomberg Businessweek focuses on articles surrounding tax reform, an idea the John Locke Foundation has advocated at the state level. One new feature story focuses particular attention on the corporate income tax rate:
For all its free-market brio, the U.S. has stayed on the sidelines of a global trend to cut corporate tax rates. From 2000 to 2010, the average statutory corporate rate among members of the Organization for Economic Co-operation and Development fell from 32.8 percent to 25.7 percent. Including subnational-level taxes, Japan’s 39.5 percent rate is the world’s highest. Prior to the earthquake, the Japanese government had announced plans to lop 4.5 percentage points off that rate in April, which would leave the U.S.’s 39.2 percent combined federal-and-state tax take as the globe’s highest. Still, the U.S. now gets just 9 percent of federal tax receipts from companies, down from 32 percent in 1952.
Unlike most other industrialized nations, which tax corporations only on income earned in their native land, the U.S. taxes corporate income earned anywhere when it is repatriated. In a world of highly mobile capital, the American approach encourages companies to invest overseas and deters them from bringing home the profits from those operations. That explains why Corporate America is sitting on an estimated $1 trillion-plus in cash in offshore accounts. “The U.S. is an outlier on the corporate rate and the corporate tax system,” says Alan J. Auerbach, a tax policy expert at the University of California, Berkeley. “On the other hand, it’s not that easy to see how to change the corporate tax in ways people like to see.”
Lawmakers on both sides of Capitol Hill have begun hearings on potential reforms. Yet unlike in 1986, when Reagan threw his full weight behind a tax-code makeover, no champion has emerged to drive the process. In his January State of the Union address, Obama said of the corporate code: “It makes no sense and it has to change.” But he has yet to offer a specific proposal.