An overarching issue in the American Economy is the Corporate Tax System. The need for a more competitive corporate tax system has been debated consistently over the last decade, yet it hasn’t happened. Other countries are lowering their statutory corporate tax rates while the U.S. rate remains high and thus detrimental to competitiveness.
The current global tax system in the United States puts manufacturing firms at a disadvantage inside and outside foreign countries. The already high corporate tax rate, coupled with double taxation of dividends and capital gains, reduces economic efficiency.
U.S. corporate tax rates, both statutory and marginal effective, are higher than tax rates in our major trading partners, making it harder for U.S. companies to compete in the global marketplace.
Similarly, the U.S. worldwide tax system, an outlier when compared to tax systems in most other developed countries, puts U.S. global companies at a competitive disadvantage vis-à-vis their competitors outside the United States. Converting from a global to a territorial tax system would make U.S. rules more internationally competitive and unlock an estimated $2.1 trillion in stranded profits held abroad by U.S. multinationals.
Our tax code is also biased, favoring consumption over saving (through high capital gains and dividends taxes, high estate taxes and high progressive income taxes). Furthermore, double taxation of corporate profits discourages firms from electing the C corporation structure that has wider access to capital markets.
To be efficient, the tax code should be relatively simple, but it is instead exceedingly complex and lengthy. Wolters Kluwer’s Standard Federal Tax Reporter compiles statutes, regulations and case law on the tax code. The publisher considers its Standard Federal Tax Reporter volume to be representative of the tax code, because an expert needs to know all 74,000 pages to understand the code.
Lower corporate tax rates, changing from a global to territorial system, more neutrality and a less complex tax code, the significant changes policymakers can make that would immediately improve the manufacturing sector’s cost competitiveness.
Debates on the future of America’s Economy are ongoing among potential presidential candidates from both parties. Which candidates are addressing the issue of the need for a competitive corporate tax system? Something to watch for, and indeed advocate for, as the candidate selection process unfolds.
« Back to Keynote Addresses