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September 19, 2012

Sweden Gets It

 

Last week Sweden's Prime Minister Fredrik Reinfeldt announced that the government intends to cut their corporate tax rate, which he called "probably the most damaging tax of all," down to 22 percent.

That's welfare state, high tax, big spending Sweden. Cutting their corporate tax rate to 22 percent-13 percentage points lower than the U.S. rate of 35 percent, which is now the highest in the developed world.

And for Sweden, this follows a previous cut in their corporate rate from 28 percent down to 26.3 percent in 2009.

Sweden gets it. We don't.

High tax rates on business income in the United States are driving job creation and investment overseas to countries that welcome it with lower tax rates. Businesses are simply making rational decisions, playing the game by the rules laid down by Congress. If you want them to make different decisions, you have to change the rules.

Yes, some in the U.S. are talking about corporate tax reform, about lowering the rate and doing away with deductions. Such simplification is good, but at the end of the day if it doesn't result in an actual, real reduction in business taxes, we haven't accomplished much. Unfortunately, the Obama administration talks about business tax reform in terms of raising more revenue, rather than reducing the tax burden.

Scanning the Swedish Prime Minister's comments, as well as other statements made by their government, I find no reference to their corporate tax cut being "revenue neutral." What they sensibly plan to do is actually lower the real tax burden on business, not just shuffle the pieces around.

In the U.S., on the other hand, almost everyone assumes that business tax reform must be "revenue neutral"-in other words, whatever we do, it would NOT lower the overall tax burden on business, because it would have to be revenue neutral from the government's perspective.

If we are serious about making structural changes in the United States that will restore our economic growth and global competitiveness, we have to force our way out of the "revenue neutral" box and talk about real reductions in the tax burden on business.

What government should be asking is: Would we rather have 22 percent of a thriving, growing business sector, or 35 percent of a moribund, struggling business sector?

Even the Swedes know the right answer to that.


 

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