As Industrialized Countries cut Corporate Taxes, U.S. rate still second-highest

September 9, 2009

WASHINGTON – Canada, the Czech Republic, Korea, and Sweden all cut their corporate tax rates in 2009, distancing the United States even further from the pack with its combined federal and state rate of 39.1 percent – second only to Japan for the highest corporate tax rate among nations in the Organization for Economic Cooperation and Development (OECD). A Tax Foundation analysis of new OECD data finds that 2009 marks the 12th consecutive year in which the U.S. corporate tax rate is higher than the average rate among non-U.S. OECD nations – and roughly 50 percent higher than that of a mid-ranked country such as Sweden.

"America's high corporate tax rate should be a red flag to U.S. lawmakers worried about the country's flagging economic growth, slow wage growth, and our overall global competitiveness," write Tax Foundation President Scott Hodge and Summer Fellow André Dammert, who authored Tax Foundation Fiscal Fact No. 184, "U.S. Lags While Competitors Accelerate Corporate Income Tax Reform." The Fiscal Fact is available online at publications/show/24973.html.

Korea enacted the largest rate cut this year of 3.3 percentage points, followed by Sweden and Luxemburg, which cut their rates by 1.7 points and 1 point, respectively. Great Britain – from which Google recently moved its European operation to lower its tax bill – and Japan are transitioning toward more "territorial" tax systems that tax firms only on the profits earned within the country's borders. These global trends toward lower corporate tax rates and "territorial" systems that don't tax foreign profits stand in stark opposition to the Obama administration's proposal to raise more than $220 billion in new corporate taxes by making the U.S. world-wide tax system tougher.

"U.S. lawmakers must take note of these global trends and take steps to make the U.S. corporate tax system competitive with its major trading partners," Hodge and Dammert conclude. "If they don't, we risk continuing to fall behind in the global race to attract capital, jobs, and economic growth."

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.