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U.S. Competitiveness and Corporate Tax Rates


The Tax Foundation recently published a report that compares the U.S. corporate income tax rate with corporate income tax rates of various developed countries.  The report, titled "U.S. States Lead the World in High Corporate Taxes," indicates that the U.S. average combined federal and state corporate income tax rate is over 39%.  By comparison, Sweden, Norway, and Finland have corporate income tax rates of 28%, 28%, and 26%, respectively.  These rates are much lower than the U.S. rate.  The results of this report might lead one to believe that the U.S. has one of the highest overall tax rates in the world.

Can this be true?  Is the U.S. really so UNcompetitive from a tax perspective?

In short, no.  Corporate income taxes are only one type of tax imposed.  Various other types of taxes exist.  For instance, many other countries impose a value added tax ("VAT").  The U.S. does not impose a VAT.  If the U.S. federal government were to impose a VAT, it is likely that it could raise sufficient revenue to significantly reduce (or possibly even eliminate) the federal corporate income tax rate.  This is not to say that the U.S. should impose a VAT.  Instead, it is merely stating that comparing solely corporate income tax rates among countries can be an "apples to oranges" comparison.

A better measure, perhaps, to consider tax competitiveness would be total taxes raised as a percentage of gross domestic product ("GDP").   In 2003, the U.S. raised total tax revenue of 25% of GDP.  In contrast, the countries of Sweden, Norway, and Finland raised total tax revenue as a percent of GDP of 51%, 44%, and 45%, respectively.  See OECD Report.  This statistic would imply that the U.S. is in fact a very competitive jurisdiction from a tax perspective.

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