End Corporate Income Tax
Byline: Richard W. Rahn, SPECIAL TO THE WASHINGTON TIMES
On Nov. 18, in a speech given at the Finance Ministry in Vienna, Austria, the very highly regarded European economist and first woman president of the Mont Pelerin Society, Professor Victoria Curzon Price, called for eliminating the corporate income tax.
There, in the center of socialist Europe, was not only the call to get rid of this destructive tax, but almost everyone in an audience of economists, various government finance officials and public policy experts appeared to agree with her.
The idea and practice of the corporate income tax has been dying slowly for the last two decades. The corporate income tax is a highly destructive tax that greatly distorts proper economic decision-making, taxes the same income more than once, is endlessly complex, and provides a declining share of tax revenue in most countries. For instance, in the United States, corporate income tax revenues fell from 4.2 percent of gross domestic product in 1967 to only 1.2 percent of GDP in 2003, though there was minimal change in the tax rate.
Good economists have long known the corporate income tax causes more problems than it solves. Many countries, seeking higher economic growth and employment, have sharply cut their tax rates. Ireland cut its corporate tax rate from 43 percent to only 12 1/2 percent, attracting investment from around the world and, in turn, becoming not only one of the fastest-growing but one of the wealthiest economies in Europe.
The new market economies of Eastern Europe seeking high growth and rapid job creation have also been cutting their corporate tax rates. Slovakia, Lithuania and Poland have a 19 percent corporate rate; Hungary 16 percent; Slovenia and Latvia 15 percent; and Bulgaria just announced it will move to a 15 percent rate next year. Montenegro, not to be outdone, announced it will go to a 9 percent rate. Estonia has become the champion by going to a zero rate on reinvested profits.
As a result of this competition, even France (34 percent) and Germany (38 percent) have been forced into modest corporate tax reductions, giving them lower rates than corporations face in the United States. American companies now have an average 40 percent rate (including state corporate taxes), and only very poorly performing Japan with its 42 percent rate is higher.
Looking at these numbers, it is easy to understand why corporations doing business around the world elect not to have the United States as their legal home, because it makes them noncompetitive. When running for president, Sen. John Kerry proposed punishing companies for leaving the United States. The correct solution is for the U.S. to abolish the corporate income tax, thereby making it the most desired location on the planet for many companies to incorporate.
Those who oppose eliminating the corporate tax will say we cannot afford the revenue loss. …