Report: High taxes hobble U.S. business

As other countries reduce their corporate tax rates, the U.S. is becoming less competitive, the Department of the Treasury said today in a background paper on “Business Taxation and Global Competitiveness.” Treasury is holding a conference on the issue Thursday morning. The U.S. now has the second-highest corporate tax rate, at 39% including state corporate taxes. The average corporate tax rate for the 30 countries of the Paris-based Organisation for Economic Co-operation and Development is 31%. Germany, China, France, Japan and the United Kingdom are planning further tax reductions. “Our tax system disrupts and distorts a vast array of business and investment decisions, leading to an inefficient level and allocation of capital through the economy,” the report said. That lowers productivity and reduces wages and living standards, it said. Further, corporations use more debt than they would otherwise because interest earned on corporate bonds carries lighter taxes than profits. Company distribution decisions are affected by higher taxes on dividends than capital gains, and investments in corporations are discouraged because of tax rates that are higher than those for other forms of businesses, such as partnerships or housing, the report said. Corporate taxes are subject to as many as three layers of tax: corporate income taxes, taxes on investors’ capital gains and dividends, and estate taxes, the report said.