If you were establishing a new business whose products would be produced and sold worldwide, would you set it up in the United States, which now has the world’s highest corporate-tax rate?
There is a growing realization that the U.S. is at an increasingly competitive disadvantage when it comes to taxing corporations. (See accompanying chart.) Even the Obama administration said it is open to a corporate-tax rate cut, and it is expected that President Obama will propose some rate reduction in his forthcoming State of the Union address.
From a purely economic standpoint, it makes no sense to tax corporations at all, because only people pay taxes, not legal entities. The corporate tax is paid by customers in terms of higher prices, by suppliers in terms of lower volumes of business, by employees in terms of lower wages and by stockholders in terms of lower returns. Many countries used to have higher corporate-tax rates than the United States, but, over time, they realized they were losing business - and jobs - to countries with lower rates; so most countries have been reducing their corporate-tax rates to attract new businesses and global firms.
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