MY VIEW: Laura Tyson
With the G8 summit over and the G20 summit approaching, CRFB board member and former chair of the Council of Economic Advisors Laura Tyson takes a look at one area that has been discussed as being ripe for reform: our corporate tax code. Despite taking in less revenue as a share of GDP than many other industrialized nations, we also have the highest statutory tax rate of those countries. Like the individual tax code, the corporate code is riddled with many tax expenditures, and there are many other design features that could be changed to make it more efficient.
Tyson makes the case for a bipartisan effort at reforming the corporate tax code in 2013 to allow American companies to better compete:
As a result of years of cuts in corporate tax rates by other countries, the US now has the highest rate among the advanced economies. Reducing the top US federal rate, currently at 35%, to a more competitive level – the OECD average is around 25% – would encourage investment and job creation in the US by both domestic and foreign MNCs.
Paying for a rate cut by eliminating various corporate credits and deductions would simplify the code and trim the cost of compliance. It would also enhance efficiency by curbing tax-based distortions in companies’ investment decisions (what and where) and their choices concerning how to finance investments and which organizational forms to adopt. The Obama administration and Congressional leaders from both parties agree that a cut in the corporate tax rate should be revenue-neutral.
Other advanced industrial countries have paid for corporate rate reductions partly by restricting depreciation and other deductions. Despite lower tax rates, corporate tax revenues have not declined in these countries and represent a larger share of GDP than they do in the US.
Eliminating some of these tax provisions will be a difficult task for lawmakers, but a more efficient tax code is well worth the trouble. This is no better shown than by our corporate tax calculator, which allows users to set a revenue target and check off a number of options while the calculator shows the tax rate that would fulfill those parameters.
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"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.