When President Obama announced his proposal to reduce the top U.S. corporate tax rate to 28 percent from the current 35 percent, he started the clock running on a political debate that will almost certainly extend into next year. But the clock is already running toward a more immediate event in tax history – the day the United States will officially have the highest corporate tax rate in the industrialized world.
On April 1, Japan will drop its current 39.5 percent rate by five percentage points, coming in just below the current U.S. rate.
The actual difference may be small, but the psychological impact of taxing U.S. companies higher than those in any other nation in the Organization for Economic Co-operation and Development (OECD) is significant. And the U.S. rate will be far above the OECD average of 25 percent, let alone the 12.5 percent rate in Ireland or 8 percent in Switzerland. While other countries have simplified, reformed and reduced their corporate tax rates over the past few decades to lure international companies and jobs, the United States has stayed firm.
Our 35 percent tax rate makes it more difficult to create jobs and opportunity in this country because it encourages businesses to put their operations in countries with lower tax rates, impedes economic growth and prosperity, and increases prices and consumer costs across the board. Retailers are among the hardest hit since they benefit from few of the deductions seen by other industries and pay at or close to the full 35 percent.
That is why NRF last year joined the RATE Coalition, a group of two dozen companies and organizations that want to reform the tax code to make it fairer, simpler and more competitive. NRF and the coalition have been working together to push the Administration and Congress toward a corporate tax reform compromise that would eliminate tax credits and deductions that benefit only a few industries in return for substantial rate reductions for all businesses, small and large alike.
While NRF favors an approach put forward by House Ways and Means Committee Chairman Dave Camp, R-Mich., to lower the rate to 25 percent for both corporations and individuals, the Obama proposal is a significant step forward. And having the White House focused on the issue is essential regardless of specific details.
To help illustrate the urgent need for reform, the RATE Coalition has created a countdown clock that marks the days, hours, minutes and seconds until the rate in Japan drops and the United States is left with the dubious distinction of being left with the world’s highest corporate tax rate.
Many Americans view April 15 – the annual deadline for filing individual tax returns – with scorn. But April 1 may be a far worse “Tax Day” not just for American businesses but for all the individuals whose jobs depend on the success of those companies.
Corporate tax reform won’t be passed by this April 1. But let’s urge Congress to set next April 1 as a goal for setting different and more welcome tax milestone – the adoption of comprehensive reform that will substantially reduce the tax burden borne by U.S. companies and allow them to compete more fairly in the global economy.
That’s the kind of “Tax Day” American businesses, workers and families want to celebrate.