By Ike Brannon (R Street Institute):
America has the highest corporate tax rate in the Organisation for Economic Cooperation and Development, or OECD. But it wasn’t always so.
In 1986, the United States cut its corporate tax rate close to the current rate of 35 percent as part of broad, comprehensive tax reform at both the corporate and personal level. The reform gave the country one of the lower corporate tax rates in the developed world. In the 27 years since, we have slowly become a high corporate tax rate country through stasis: literally every single country in the OECD has reduced its corporate tax rate in the past twenty years, with many having done so multiple times. Except for the United States. There are no shortage of people on both sides of the aisle dissatisfied with this state of affairs. In the past year, members of both parties, as well as the Obama administration, have offered support for reducing corporate tax rates, but all insist that such reform be done so that the loss in tax revenue from a reduced rate is “paid for” by increasing revenues in other ways, such as eliminating certain tax deductions or tax credits made available to corporations.
Such constraints would doom corporate tax reform to have only a very slight effect on economic growth, as evidenced by not just a bevy of economic models but also by the experience of the other OECD countries. Corporate tax cuts may not pay for themselves, but the money collected via the corporate tax rate ranks among the least efficient and most costly revenue a government collects in terms of foregone economic growth. Other governments in the developed world realize this, and as a result, the vast majority of corporate tax rate reductions that have occurred in the OECD in the last decade have not been paid for.
The result has been more economic growth as well as more robust corporate tax revenue gains than would have otherwise been the case.
Read the rest of Brannon’s piece on reforming our corporate tax laws here.