Taxation in the International Marketplace

The global marketplace is an increasingly competitive arena in which countries are making tax concessions in order to attract multinational corporations. In order to stay competitive with the rest of the world the United States must take a closer look at their taxation laws and amend them as conditions warrant.

The article Overhauling the Old Jalopy by The Economist (No author identified) is about the increasing problem of high corporate taxes in the United States versus countries overseas. Hank Paulson the treasury secretary recently held a summit in Washington D.C. to address the fact that “our system is visibly lacking behind the best practices in the rest of the world.” The article states that “If headline tax rates were all that mattered, America would be an unattractive place for companies to locate.” In fact America’s corporate tax rate of 35 percent, 39 percent when state tax is added is the second highest in the Organization of Economic Cooperation and Development (OECD). These high tax rates make a significant difference in where multinational corporations record profits and business is done.

The problem facing those who want to overhaul our current corporate tax system is the current political climate and trends towards reducing the middle class tax liability while increasing tax liability for the rich. The last thing the American public wants to see is lower taxes for multinational corporations. However the lack of the American people’s willingness to accept a corporate tax cut lies in a lack of education. A study conducted by Kevin Hassett and Aparna Mathur of the American Enterprise Institute showed that a 1 percent increase in corporate tax rates result in a 0.8 percent cut in manufacturing workers wages. The study showed that in reality high corporate taxes are taking “a toll on the common man.”

We now live in a truly international marketplace in which the world has never seen the likes of before. In this marketplace the competition is fierce for multinational corporations to find ways to cut costs and stay ahead of the competition. This article brings to light a facet of the new international marketplace that many don’t think of, taxation. With it becoming easier than ever for corporations to move across international lines, the tax code may become a major player in where a company decides to headquarter itself and declare profits. If the United States does not stay competitive with the rest of the world we may start to see corporations move their headquarters off our shores to reduce their tax liability. As countries lower corporate tax rates to attract more international business for example China at 25 percent and Ireland at 13 percent, (Overhauling the Old Jalopy by The Economist) the United States become increasingly less attractive to both investors and to corporations who are already here.

Hopefully our citizens and politicians will soon realize that there are more to tax cuts than what we are immediately exposed too, and that to continue to ignore the fact that US corporate tax rates are well above the standard set by the rest of the world will do nothing but stifle growth in our country. In order to attract and keep business in the United States we must make business attractive in the United States.

References:

Overhauling the Old Jalopy. (2007, August 2). The Economist. Retrieved August 7, 2007, from The Economist
Web site : http://www.economist.com/finance/PrinterFriendly.cfm?story_id=9596317