I have often written on the urgent need for the US to address its uncompetitive corporate tax rate if it really wants to grow its economy and employment, and therefore over time correct its budget deficit (THE URGENT NEED TO CUT US CORPORATE TAX RATES (II). Canada did exactly that in the late 1990’s:
THE CHART ON THIS PAGE, summarizing the results, is taken from a National Bureau of Economic Research working paper, “Cross-Country Comparisons of Corporate Income Taxes,” published in February. (…)
Among major industrial nations or regions, the U.S. imposes the second-highest effective tax rate on corporations. (…)
“The Effect of Corporate Taxes on Investment and Entrepreneurship,” a study published last year by the American Economic Association, found a “large adverse impact” from high corporate tax rates on aggregate investment and entrepreneurial activity. In any case, even if the U.S. trimmed its corporate rate a bit more, it still wouldn’t be low, relative to other countries’. Japan, whose economy has been stagnant for years, might want to ponder this.
Contrary to popular perception, multinationals often pay a higher effective tax rate than domestic corporations. Companies based in Japan and France are the major exceptions, with the ETR for domestic corporations running higher by a percentage point or two.
But in the U.S, the gap has run about five percentage points higher for multinationals, and in Sweden, by as much as eight percentage points. While multinationals have flexibility to reduce their effective tax rate—by, say, basing their headquarters in low-tax nations—they still must contend with multiple claims on their earnings. (…)