A Higher Corporate Tax Rate Would Place the U.S. Rate Up Top

Every year the Tax Foundation releases a detailed report on corporate tax rates around the world, comparing corporate tax rates by country and by region.  This report should be read by anyone who thinks the U.S. corporate tax rate is too low and should be increased.

The Tax Foundation report, which looked at 226 jurisdictions around the world, shows that the U.S. corporate tax rate is actually higher than the corporate tax rates in most countries.  It also shows that raising the rate even a few points would make the U.S. rate one of the highest in the world.

The average corporate tax rate around the world has declined steadily since 1980, dropping from an average of 40% to 22.5% today.  Most countries reduced their rates after a landmark OECD study showed that the corporate tax was the most harmful to a country’s economy and ability to compete.  Until 2017, the U.S. rate was 35%, or a combined federal-state tax rate of 38.9%, one of the highest in the world.  Scores of companies and jobs left the country to avoid the high rate. 

The U.S. finally reduced the rate to 21%, a combined rate of 25.6%, and jobs and investments returned to the U.S.  However, despite the U.S. rate cut, two-thirds of the world’s countries still have a lower corporate tax rate. 

Most countries have corporate tax rates between 20% and 25%, and more than 90% have corporate tax rates below 30%.  Only 16 countries have a corporate tax rate above 30%, and most of them are in Africa and South America.  This is the rate the U.S. would face if Senators Bernie Sanders and Elizabeth Warren and a few others have their way.

Raising the U.S. corporate rate even a few points to 25% would result in a combined rate of 30%, right up there near the top.  Increasing the rate to 28% would result in a combined rate of nearly 33%, one of the highest rates in the world.  Raising the corporate rate to these levels would be a new drag on our entire economy and make it much more difficult for  U.S. companies to compete around the world.

A U.S. rate at 30% or above would be higher than nearly every other OECD country, and 50% higher than the average Asian and European corporate rates of 20%.  A U.S. rate that high would be twice as high as the 15% tax rate China levies on its most important business sectors.  Why would we want to do that?

A high U.S. rate would shrink the economy, reduce investment and productivity, and harm our global competitiveness.  Raising the rate would be a costly mistake, raising only a fraction of the expected revenue from a smaller economy.  And as every study has shown, a large part of the cost of a higher rate would fall on working people in the form of lower wages and fewer jobs.  That would definitely be a costly mistake.