Wednesday, April 20, 2011

Tax Policy Hinders Domestic Job Creation

The corporate tax rate in the U.S. is 35%, the highest among the top 10 developed nations in the world.  President Obama has insisted that the 35% rate is misleading because of all the deductions and credits that corporations can employ to reduce the amount of taxes actually paid.  A study jointly done by the Tuck School of business at Dartmouth and the Kenan-Flagler Business School at the University of North Carolina compares effective corporate tax rates for all developed nations.  The study shows that while the United States' effective corporate tax rate is in fact lower (22.5%)  than the 35% nominal rate, it is still 2nd highest among the 10 most developed nations demonstrating that there is a disincentive for U.S. multinational corporations to repatriate profits earned overseas.  These profits are being reinvested overseas and are not being reinvested here to help expand our economy and reduce unemployment.

Paul Ryan's proposal to reduce tax rates across the board while eliminating most of the deductions and credits would go a long way toward enhancing U.S. competitivenss in the world markets thereby reinvigorating our own economy.  It would also reduce the kind of distortions evidenced by the revelation that GE pays no taxes to the IRS while other corporations are paying close to the 35% nominal rate.  

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