November 16, 2017

America's High Corporate Income Tax Rate Harms Global Competitiveness

Key materials

America’s corporate income tax rate is still the highest of all developed nations, according to the Organisation for Economic Co-operation and Development (OECD)—almost 15 percentage points higher than the OECD average, as the chart below shows. This high corporate income tax rate has adverse effects on American investment and growth.

Corporate tax rates have dropped dramatically in developed countries, from an average of around 48 percent in 1980 to 24 percent today. In the United States, however, the tax rate has barely changed since the 1986 tax reform and remains near 39 percent. 

Other OECD countries have continued to cut their corporate tax rates aggressively, while US tax rates have stayed stubbornly flat. In fact, 30 nations have cut their rates since 2000.

Consequently, US companies have increasingly looked overseas to ease their tax burdens with corporate inversions. In a corporate inversion, an American company acquires a foreign company and then relocates the American company’s legal headquarters out of the United States for tax purposes, in an effort to remain competitive globally.

Cutting the corporate tax rate would reduce the tax burden on American business; this reform would also address the underlying cause of inversions and remove the need for such practices. As a result, American companies would be better able to compete at home and abroad.