We have long argued that lower tax rates are crucially important for economic growth, and that lower rates can actually result in increased tax revenues. Moreover, because those who control most of the capital that is used for production (rather than consumption) will respond very quickly to changes in tax rates, cranking up tax rates on the profits that result from productive activity is even more counterproductive and damaging to growth.
If this is true for individual tax rates, it is just as true for corporate tax rates. In fact, it is especially true for corporate tax rates because earnings that corporations retain are typically invested back into productive activities that employ more individuals or result in purchases of plant equipment, IT equipment, and so on.
On this front, the United States has the second-highest corporate tax rate in the industrialized world, at 35% second only to Japan (see map showing world corporate tax rates, above).
Many politicians in the United States like to bash American corporations that do not bring home cash from their overseas operations, but when that cash will be more severely taxed in the US than abroad, can anyone really blame them?
If every road in your town was a toll road, but some toll roads charged $10 per day and others charged $35 per day, with all kinds of dollar figures in between, would you rearrange your daily driving based on the different prices, or just buffalo right through without paying any attention to the costs?
Capital behaves the same way -- it flows like a river, and it will flow around places that are unfriendly to it and towards places that are friendlier. The US corporate tax rate of 35% is equal to the 35% charged in Argentina and Angola. Canada charges 16.5% and Mexico 28%. Much of Europe is at or below 30% (except France), with Bulgaria at 10%, Ireland at 12.5%, and Latvia at 15%. To argue that corporations ignore such corporate tax rate discrepancies is really naive.
In order to stimulate economic growth, raise employment, and ultimately raise more tax revenues, the United States should lower its corporate tax rate.
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
