On April 1, Japan cut its top corporate tax rate, leaving the United States with the highest combined federal and state statutory rate in the industrialized world.
The following day in Columbus, a group of business leaders, legislators, educators and lobbyists gathered to advocate for reforming the tax code. In addition to pushing for a fairer and simpler tax code, presenters stressed that getting the corporate income tax rate down is a key to an economic turnaround.
“It’s critical we reform the corporate side and the individual side to get this economy moving again,” said Ohio Sen. Rob Portman at a Reforming America’s Taxes Equity (RATE) Coalition event at OSU’s Fisher College of Business.
Japan and the United States have been practically tied for the top combined, statutory corporate rate, with levies of 39.5% and 39.2%, respectively. These rates include central government, regional and local taxes.
Japan's reduction was prompted by years of pressure from politicians hoping to spur economic growth. Portman suggested that a similar effort was building in the U.S., noting that the last major reform here was in 1986.
“Every single one of our trading partners has lowered their rates since then,” he said. “… The United States cannot sit this out.”
Rep. Patrick Tiberi, R-Ohio, cited an Ernst & Young study which found that the U.S. and Japan lost a net total of 46 and 39 Fortune Global 500 headquartered companies, respectively, from 2000 to 2011. During the same period, China gained 45.
“The best paying jobs in any community are the headquartered jobs,” Tiberi said, also noting the community investments such companies make near their center of operations, such as in parks, hospitals and the arts.
William Raabe, CPA, PhD, a professor of taxation at the Fisher College of Business, said the RATE Coalition’s recommendation to cut the corporate tax rate to 25% would have immediate positive effects on the economy. The average 2012 corporate tax rate for the 34 developed countries is 25.4%, according to the Organization for Economic Co-operation and Development.
Raabe said businesses would not only benefit from having additional funds to reinvest in their company, but also from having more predictability, a sentiment echoed by Mark Schichtel, senior vice president and chief tax officer for Time Warner Cable.
“Most businesses look ahead several years when they make decisions on building or hiring,” said Schichtel, who participated in a panel discussion on the issue. “When you don’t have a level of consistency and predictability, how can you make that prediction?”