Tax Revolution Continues in 2008

KPMG has released its annual survey of worldwide corporate tax rates. Here are some of the results:

  • Corporate tax rates continued to fall around the world in 2008.
  • The average corporate tax rate across 106 countries surveyed was 26 percent. By comparison, the U.S. corporate tax rate is 40 percent.
  • The average rate across the 30 OECD industrial nations is down from 38 percent in 1996 to 27 percent today.
  • The average rate across the European Union countries is down from 38 percent in 1996 to just 23 percent today.

But rates are falling so quickly that KPMG’s new survey was outdated before the ink was dry. Just this week, South Korea announced that it was speeding up a cut to its federal corporate rate from 25 percent to 20 percent, and Sweden said that it would cut its rate from 28 percent to 26 percent.

What does all this mean for America’s economy? Dan Mitchell and I tell you in Global Tax Revolution. In part, America’s failure to reform its corporate tax threatens to:

  • Induce more U.S. corporations to move more of their investment to foreign locations such as Ireland and China.
  • Induce more foreign corporations to avoid the United States when choosing the location for their next computer, automobile, or pharmaceutical plant.
  • Induce corporations to work even harder to change their legal structure, operations, and international transactions to minimize their reported U.S. profits.
  • Give U.S. multinational corporations even more reason to keep their foreign earnings parked abroad rather than to send them back to U.S. headquarters.
  • All these decisions will reduce American economic productivity, and thus reduce wage rates for average U.S. workers over time.
  • And, unfortunately, all these changes will likely induce more breast-beating from politicians on Capitol Hill about ”Benedict Arnold” companies moving investment and profits offshore.   

America will eventually cut its corporate tax rate, but we can avoid a lot of economic pain and displacement if we do it sooner rather than later.