Last month was the 37th straight month of the Obama administration with an unemployment rate over 8 percent. The United States has lost nearly 900,000 jobs since the president’s so-called “stimulus” was signed into law. And it seems that each month, President Obama tells us we must do more to get the economy moving.
I completely agree, and I hope that the president will be willing to work with me to reform America’s incredibly uncompetitive corporate tax structure. A coherent and competitive tax structure is an essential component of economic growth.
This month the nation of Japan will reduce its corporate tax rate to 36.8 percent. By international standards, this is still extremely high. That’s a major reason why that nation has experienced sluggish growth for well over a decade. The average corporate tax rate for advanced economies in the Organization for Economic Cooperation and Development (OECD) is about 25 percent. Japan has slowly discovered that maintaining a higher rate – one nearly 50 percent higher than the average – is an incredible deadweight on growth. And Japan is not alone – 75 countries have cut their corporate tax rates in the last 5 years.
However, even as high as Japan’s current rate is now, it is lower than that of the U.S. Our current tax rate is stunning 39.2 percent. This is a major deterrent to investment here. It reduces job creation and economic growth, as well as the tax revenue that goes with each of those. Sadly, America is paying for this anti-competitive policy in higher unemployment, lower wages, and a less innovative economy. It also increases our annual deficits, as companies exercise their rights to re-invest the profits that they have earned abroad, rather than bring those revenues back to the U.S.
Just two weeks ago, Apple Inc. announced that the company will not bring more than $60 billion in profits earned abroad back home to the U.S. And according to Moody’s Investors Service, Apple is far from alone. They estimate that nearly $700 billion in corporate earnings are being held abroad by American companies – mainly due to the United States’ anti-competitive tax policies. Companies like Apple are distributing dividends to shareholders and simply holding revenues overseas, in the hopes that Washington will one day come to its senses and create an environment where those resources can be invested in the U.S. So far this hasn’t happened.
Unfortunately, President Obama has chosen to demagogue this issue rather than work with Republicans and Democrats in Congress who want to fix the problem. His corporate tax reform plan ‘reduces’ the top-line rate to 28 percent – still above the average – and more than offsets this reduction with increases elsewhere. The net effect in many cases will be to increase business taxes. This is no way to encourage investment and job creation. Instead, it signals to international investors that the U.S. is committed to keeping taxes high, and that they are better off investing abroad.
While the president’s policy is misguided and harmful, it shouldn’t be surprising. It’s the same ideological approach he’s taken on the job-destroying capital gains tax. In 2008, when candidate Barack Obama was asked whether he would push to double the capital gains tax rate, he replied that he would be fine with such a policy on the basis of “fairness” even if such a move would likely reduce federal revenue. Indeed, that’s precisely what happened when Presidents Reagan and Kennedy lowered the capital gains tax rate – revenues increased.
But President Obama was not concerned that his tax increase would lower revenues and raise the deficit. He said he supported raising taxes ‘for purposes of fairness.’ This is a president who puts ideology over results – over job creation and prosperity. It’s the same shortsighted path he has followed on health care, energy, regulation, and a host of other policy areas. We need to change course immediately, and do what works.
Today is another sad anniversary under this administration — the United States moves into last place when it comes to a pro-growth corporate tax policy. This didn’t happen by accident. It is the foreseeable outcome of President Obama’s harmful agenda. But it is not too late to act to improve American competitiveness. I believe that a bipartisan majority in Congress recognizes that this nation needs comprehensive tax reform to lower rates and broaden the base. Congress can and must close loopholes and end special tax breaks without punishing job creators.
Republicans stand ready to work with President Obama to enhance competitiveness, encourage investment, and create jobs. We just need to set ideology aside, and commit to doing what works.