U.S. Tax Competitiveness

In November 2005, the Congressional Budget Report issued a report on how U.S. corporate tax rates compare to other developed countries. So how do U.S. rates compare?

According to the Report, the top statutory corporate rate in the U.S. is one of the highest among all developed countries. Nonetheless, it is comparable to the rates in other similar, large industrialized economies (members of the Group of Seven).

The Report notes that the relatively high rate creates incentives for U.S. and foreign multinational companies to use international tax planning to reduce their U.S. taxable income by shifting it to low-tax countries. The rate also affects the incentives for business investment.

Also according to the Report, historical trends suggest that countries do not choose their tax rates independently of one another. After the U.S. and the United Kingdom reduced their corporate tax rates in the 1980's, other OECD countries reduced theirs, apparently in response and perhaps out of concern that they would otherwise lose investment or a portion of their tax base to other nations. Those other countries eventually reduced their own tax rates by even more than the United States.

An implication of the Report - U.S. corporate tax rates can use some lowering to remain competitive in the search for international investment capital.