The Organization for Economic Cooperation and Development (OECD)
released new data showing that the United States corproate tax rate
is getting more out a whack with the rest of the industrialized
world. And that is a bad thing. High tax rates
tend to adversely affect a business' and a
nation's ability to attract capital, jobs, and economic
growth.
The average tax rate of OECD nations fell to 26.5% after Sweden,
Czech Republic, South Korea and Canada lowered their rates this
year. The United States corporate tax rate is at 39.1%, only
behind Japan when looking at industrialized nations.
Great Britain is learning the hard way; they recently lost
McDonalds' and Google's European operations so those companies
could lower their tax bill.
Manufacturing business can be hurt by high corporate
tax rates, because high tax rates cause manufacturers to
not accumulate capital that is needed to increase
productivity. Lower productivity causes GDP to
decline.
The Tax Foundation also addresses the effective tax rate
argument when considering the US tax code:
"To many "new economy" firms that produce ideas and services, and
whose profits are derived from intellectual property and licensing,
the statutory tax rate is the effective rate because these
firms don't have large plant and equipment costs to depreciate.
They are highly sensitive to the statutory rate and, because they
are not capital-intensive, can most easily locate their operations
in jurisdictions with the lowest tax rate."
The OECD economists reported,
"Corporate income taxes appear to have a particularly negative
impact on GDP per capita. This is consistent with the previously
reviewed evidence and empirical findings that lowering corporate
taxes raises TFP (total factor productivity) growth and
investment. Reducing the corporate tax rate also appears to be
particularly beneficial for TFP growth of the most dynamic and
innovative firms. Thus, it seems that corporate taxation affects
performance particularly in industries and firms that are likely to
add to growth."
Read more about the report and analysis of corporate tax rates and
their affect on manufacturing businesses here.