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1 Chris Atkins & Scott A. Hodge, Congress Finally Considers Lower Corporate Tax Rate but Underestimates International Tax Competition 1 (2007)

handle is hein.taxfoundation/ffbaixz0001 and id is 1 raw text is: FOUNDATION
Congress Finally Considers Lower Corporate Tax Rate but Underestimates
International Tax Competition
Fiscal Fact No. 108
by Chris Atkins and Scott A. Hodge
October 25, 2007
Introduction
Chairman Rangel has proposed to cut the U.S. corporate tax rate from 35% to 30.5%, which would
make the U.S. rate fourth highest internationally, instead of second highest where it stands right now
(see Table 1). The average OECD corporate tax rate, U.S. excluded, is 28.1 %.
Although this proposed cut may seem inadequate after what our international trading partners have
done, nevertheless Congress is finally trying to catch the wave of corporate income tax reduction that
has been sweeping the developed world for more than a decade. Five countries in the Organization
for Economic Cooperation and Development (OECD) cut their corporate income tax rates in 2006,
and eight more, including Germany, will have cut their rates by January 1, 2008.
In the OECD, only Japan's 39.5 % rate is higher than the U.S. rate right now. The U.S. would leapfrog
only Italy and Canada under Rangel's proposal.2 Germany is one of several countries that had higher
tax rates than the U.S. in 2000 but will have a lower rate than the U.S. in 2008 even if the Rangel cut
is enacted. Ireland has the OECD's lowest rate at 12.5 percent.
As OECD countries have lowered their corporate income tax rates, they have reaped more foreign
direct investment from the U.S. A recent study by Devereux and Lockwood found that when an EU
member state cuts its corporate rate by 10 percent, from 30 to 27 percent for example, it can expect to
reap a 60-percent, short-run increase in investment by U.S. multinational corporations.3
As foreign governments have enticed U.S. investors with these lower tax rates, the U.S. has kept the
same basic rate structure for 20 years, merely enacting a one-point rate hike from 34% to 35% in
1994. That has left the U.S. as one of only two countries in the OECD not to reduce its corporate tax
rate between 1994 and 2006, and one of only six OECD countries without a rate cut between 2000
and 2006. Not one OECD country raised its corporate tax rate between 2000 and 2006, and the
average reduction was from 33.7 percent to 28.5 percent. France, Japan, and the United Kingdom
may also reduce their rates in the next year.4

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