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Monday, October 3, 2011

Corporate Tax Rates

Our chapter on economic policy discusses corporate income taxes. An article in Politico suggests a possible area of bipartisan agreement on this topic. The authors are the co-chairs of the RATE Coalition: Elaine Kamarck of Harvard's Kennedy School, former adviser to President Bill Clinton and Vice President Al Gore; and James P. Pinkerton of Fox News, former adviser to Presidents Ronald Reagan and George H.W. Bush.

Democrats and Republicans don’t agree on much in Washington these days. But they do agree on one thing: The No. 1 issue for the nation is the economy — restoring jobs and growth. And while they are still miles away from each other on many issues, President Barack Obama and House Speaker John Boehner both agree that a reduction in the corporate income tax rate would boost jobs and growth. Obama has said that if we could close corporate tax loopholes, we could lower the overall corporate tax rate. And Speaker Boehner has said that lowering the rate is “critically important.”

As Ernst & Young has documented, the U.S. is burdened by the second-highest corporate tax rate in the world. And most competitiveness experts, in both parties, agree that the rate is so high as to be economically counterproductive — even destructive. As the E&Y data show, beginning in the late 1990s, the weighted average corporate tax rate for the OECD countries, excluding the U.S., has been lower than the U.S. corporate tax rate. Indeed, after a decade of rate cuts, the OECD average is now lower than the U.S. rate by a substantial margin. We call this the Corporate Tax Competitiveness Gap, and it is hurting the American economy. The issue, then, is solving the problem.