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On Sunday, the United States gets a distinction no nation wants -- the world's highest corporate tax rate.
Japan, which currently has the highest rate in the world -- a 39.8% rate on business income between national and local taxes -- cuts its rate to 36.8% as of April 1. The U.S. rate stands at 39.2% when both federal and state rates are included.
"The change in and of itself is not that important, but there's some symbolism involved in being the highest in the world," said Eric Toder, co-director of the Tax Policy Center, a non-partisan think tank. "There's certainly been a long-term trend of our rate getting higher relative to everyone else."
But despite the headline number, the statutory rate only tells part of the story.
Loopholes and other special treatment for different kinds of businesses mean that businesses pay an effective rate of only 29.2% of their income, which puts the United States below the average of 31.9% among other major economies, according to analysis by the Treasury Department.
And the Organization for Economic Cooperation and Development, the multinational group that tracks global economic growth, estimates the [COLOR=#0000ff]United States collects less corporate tax[/COLOR] relative to the overall economy than almost any other country in the world.
[COLOR=#0000ff]Tax reform: Why it's so hard[/COLOR]
Some economists argue that tax collection relative to gross domestic product is the more relevant measure. That's because different accounting rules around the world mean what's counted as income in one country isn't counted in another, making comparisons of tax rates misleading.
Still, both Democrats and Republicans argue that the corporate tax rate should be lowered as a way of [COLOR=#0000ff]promoting greater economic growth[/COLOR], so that multinational companies have incentive to invest more in their U.S. operations than overseas. President Obama has proposed cutting the corporate rate to 28%, Republican challenger Mitt Romney proposes a 25% rate.
Both sides are in agreement for the need to reduce the loopholes and other exemptions that shield companies from paying taxes on all their income. That kind of reform could increase corporate tax collections, or at least leave them unchanged, even with a lower rate.
[COLOR=#0000ff]Obama's tax plan[/COLOR]
But reaching agreement on that kind of tax reform has proved to be virtually impossible, especially during an election year.
For example, President Obama wants to impose a minimal tax on the overseas profits of U.S. companies to discourage them from moving operations offshore to tax havens. Romney and the Republicans oppose that proposal.
[COLOR=#0000ff]Romney's tax plans[/COLOR]
So the United States is virtually certain to have the title of the world's highest corporate rate, at least until after the presidential election.
U.S. corporate tax rate poised to become highest - Yahoo! Finance
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