Standing Still and Falling Behind

On business-friendly tax reform, the rest of the world is passing us by

Of late, U.S. economic policy has been dominated by responses to short-term crises — the Wall Street bailouts, the economic-stimulus bill, and post-hurricane spending. Whether or not such interventions make sense, they divert attention from the urgent need to bolster America’s long-term competitiveness in the global marketplace.

Many of our international competitors have initiated dramatic tax reforms that put them at a distinct advantage for attracting outside investment and attendant job growth. Consider that 12 of the 30 nations in the Organization for Economic Cooperation and Development have capital gains tax rates of zero; meanwhile, Congress is dithering about extending our 15-percent capital-gains tax rate... [snip]

Corporate tax rates offer an even more striking comparison. Our high rate of 40 percent is a neon sign advertising America’s hostility to job-creating capital. U.S. policymakers sat on their hands as the European Union slashed the average corporate tax rate from 38 percent in 1996 to just 23 percent today. If a country stands still in today’s global economy, it falls behind... [snip]

America is not a unique free-market haven anymore, but many U.S. policymakers are oblivious to this new reality. Here is Barack Obama in the first presidential debate responding to John McCain’s idea to cut the corporate tax rate: “There are so many loopholes that have been written into the tax code . . . that we actually see our businesses pay effectively one of the lowest tax rates in the world.”

In a new Cato Institute brief, Jack Mintz, one of Canada’s top tax experts, finds that the U.S. rate of 36 percent is the eighth highest of the 80 countries studied, and is far above the average rate of 20 percent... [snip]

Most of our trading partners have figured out these dynamic aspects of corporate tax cuts. Just this year, Britain, Canada, Germany, Italy, South Korea, and Spain cut their corporate rates. We need to follow suit. When Congress is finished trying to fix yesterday’s economic failures, it should start focusing on future economic success by pursuing major tax reforms.

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