Why Cut the Corporate Tax Rate?

by Denny Strigl

We are hearing a lot lately about corporate taxes. When discussing the need to reduce our federal deficit, there are those who say raise taxes because it’s the fair thing to do and corporations make too much money, and there are others who say cut taxes because it will stimulate investment and help create jobs.  There is so much “noise” carried by TV, radio and newspapers supporting both sides of the issue that I thought I would try to explain why I’m for cutting corporate taxes.

In keeping with chapter 4, “Keeping Things Simple”, in Managers Can You Hear Me Now? I will attempt to explain my position simply and clearly.

Simply stated:  cutting the corporate tax rate will make America a more competitive place to do business.

A few facts.  The current federal tax rate for U.S. corporations is 35%.  This is highest tax rate among developed countries in the world.  The average tax rate of our major international trading partners is in the high 20% range.  This, in part, causes costs, and therefore prices, of many American companies to be higher than those of many overseas companies resulting in fewer products produced in the U.S. for shipment abroad.  It also results in more imports to the U.S. from our overseas trading partners which, of course, means fewer products produced in the U.S. for consumption in this country.  The higher U.S. tax rate is also a reason why more U.S. companies are moving their operations to countries like China, India, Mexico and Ireland.  Bottom line:  fewer jobs are required here in the United States.

Let’s go a step further.  Fewer jobs here in the U.S. ripples through the economy.  There is less money to spend which results in fewer employment opportunities in retail sales, construction, manufacturing and especially in small businesses.  When the economy is humming, it is in mid-sized and small businesses where the majority of job growth occurs.  Bottom line:  the economy is in the doldrums and we are experiencing almost no job growth.

All of this is to say that if corporate tax rates were reduced to levels competitive with the tax  rates of other developed countries we would experience a positive ripple effect.  It would encourage U.S. businesses to invest more in plant, materials and infrastructure.  It would help narrow our trade deficit.  It would result in less need for companies to shift operations overseas.  All of which would result in more U.S. job opportunities.

A word of caution:  A reduction in the corporate tax rate alone will not produce the kind of job growth required to get our unemployment rate down significantly from the 9% level.  What it will take to get unemployment down to pre-recession levels is a combination of lower taxes and less regulation.  Businesses are also not hiring because of time consuming and costly regulations imposed by our federal and state governments.  In addition to a cut in the corporate tax rate, what is needed is fewer regulations imposed upon U.S. businesses…and certainly no new regulations at this time.  Fix both and we will see jobs “created” and people getting back to work.

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