Promoting freedom, innovation, and growth

Connect with IPI

Receive news, research, and updates

May 3, 2016

Communist China Shows the U.S. How to Spur Economic Growth

 

China has an idea!  According to the Wall Street Journal, the country wants “to boost economic growth by cutting costs for service providers and manufacturers and prodding them to invest.” So the largest communist country is lowering its corporate tax rate from 25 percent to 17 percent. 

Back in the U.S., President Obama has a different idea. 

The Obama administration doesn’t believe reducing the U.S. corporate tax rate, currently at 35 percent, the highest in the developed world—about 39 percent including state corporate income taxes—spurs economic growth. It thinks that’s what government spending does. 

So remind me once again which country is supposed to be the free market leader of the world and which one is bogged down in socialist economic dogma. 

And China isn’t alone. As the Tax Foundation points out, corporate tax rates have been dropping worldwide for more than a decade. [See the figure.] The current average among the 34 OECD (Organization for Economic Cooperation and Development) countries, which includes the most advanced economies, is 19.2 percent.

 

Thus, U.S. companies face a corporate tax rate of about twice that of companies based in other developed countries. And in a global economic race, that means most countries are getting a head start, and U.S. companies are understandably looking for ways to reduce their foreign competition’s tax advantage. 

The best and most responsible solution is corporate tax reform. Both Donald Trump and Ted Cruz have proposed tax reform plans that would dramatically lower the corporate tax rate to make U.S. companies competitive again, at least with respect to taxes. 

But Obama’s response has been to build a tax and regulatory “Berlin Wall” to keep U.S.-based companies in. Those actions forced Pfizer to drop its proposed merger with Dublin-based Allergan.  

Lots of people seem to think the political world is upside down right now, and they’re right. But you’d also have to say the economic world is upside down when communist China understands the need for lower corporate tax rates while the U.S. builds a corporate Berlin Wall.


 

  • TaxBytes-New

Copyright Institute for Policy Innovation 2017. All Rights Reserved Privacy Policy Contact IPI.

e-resources e-resources