It’s understandable that most Americans are tuning out recent discussion of corporate tax reform. Terms such as inversions, earnings stripping and innovation box don’t mean much to the average American, or many members of Congress for that matter. After all, many think that corporate tax reform is just about big business getting a tax break and most Americans don’t know how it affects them.
It’s clear that the economy, almost seven years after the recession ended, is still not quite where it should be at this point. Unfortunately, our current tax code bears much of the blame, stifling economic growth and investment. Corporate tax reform is the necessary catalyst to get the U.S.’s economic engine running again. And, with anemic growth in the economy last year, all options need to be considered.
As it stands now, the United States has one of the highest corporate tax rate among developed countries at 39.1 percent (when state taxes are included). Compare this to the UK’s rate of 20 percent and the Canadian rate of 15 percent. Lowering our rate to be more in line with our global competitors would not only allow us to be more competitive but would result in economic growth, investment and jobs right here at home.
According to the Tax Foundation, reducing the corporate income tax rate down to 25 percent would increase the size of the our Gross Domestic Product (GDP) by 2.3 percent. Large and small companies would not only benefit, but so would America’s workers. And depending on the size of the rate reduction, the nation could see an additional 425,000 to 613,000 new jobs with wages increasing between 1.9 percent and 3.6 percent.
The Tax Foundation concluded that, “Not only would cutting the corporate tax rate improve U.S. competiveness, but it would also boost economic growth and benefit American workers. A lower corporate tax rate would lower the cost of capital, which would boost the level of investment in the economy. The increased investment would raise the productivity and wages of American workers which, in turn, would lead to higher living standards.”
Along with lowering the corporate tax rate, moving from our worldwide tax system to a territorial tax system would also increase wages and create jobs for Americans. Under the worldwide system, U.S.-headquartered businesses are taxed on both their domestic and foreign income while under a territorial system, only income earned within a country’s border is taxed. So how would changing this help Americans?
The Heritage Foundation noted that the current worldwide system “is not neutral in that it raises the threshold for U.S. businesses to invest abroad.” Switching to a territorial system would allow the U.S. to “unlock investment that the current worldwide system is restraining, improving business efficiency.” The result would create jobs and raise wages for American businesses.
While talk of “corporate tax reform” may turn off many Americans who are left scratching their heads wondering why our policymakers are making such a fuss, the reality is that they should be heavily invested in this discussion. After all, it’s the path towards a brighter economic future for all.