Nick Rudnik, Valdosta Today Political Contributor:
The Need for a Tax System That Makes Business Competitive and Our Fiscal Situation, Sound.
The U.S. statutory corporate tax rate sits, according to professional services firm KPMG, at 40 percent. That’s right, 40 cents on every corporate dollar earned is supposed to be sent to the Uncle Sam at the U.S. Treasury. According to the same KPMG report, on average, the mean statutory tax rate in the EU is nearly half of the United States’ rate—at 21.34 percent. And further, that’s down from an average EU tax rate of 24.83 percent in 2006.
In fact since 2006, Germany has lowered their statutory corporate tax rate, as has Canada, Greece, Norway, Russia, South Africa, Switzerland, the United Kingdom, and many others. The general trend among the industrialized countries appears to be reducing corporate tax burdens to around the 20 percent threshold.
But, the United States still sits at a, quite high, 40 percent.
Now, I know, there’s a distinction between the statutory and effective tax rates. The New York Times, in a November 2013 report, noted that since 1987, U.S. corporate taxable income has decline from 95 percent to 68 percent presently. In short, it’s true that U.S. businesses are paying much less than the legally-prescribed 40 percent requirement. But can you really blame them?
The new economic realities of globalization mean that U.S. firms aren’t just competing with those in Florida, California, Michigan, or the like; but in China, France, the UAE, and the rest. If the United States continues to be among the highest taxing nations in the Global North, we will continue to hemorrhage U.S. businesses—and by extension, U.S. jobs. Think rationally: if I can move my business to, say, Liechtenstein, a nation comfortably in the Global North, with a statutory tax rate of around 12.5 percent, wouldn’t I? If it makes my firm more competitive, then I certainly would.
Indeed, there’s an argument to “tax patriotism”—often propagated by the likes of President Obama and Massachusetts Senator Elizabeth Warren. Absolutely, echoing the famous words of Supreme Court Justice Oliver Wendell Holmes, “Taxes are the price we pay for a civilized society.” But, not if taxes are exacting a stranglehold over private enterprise, as is the case with many American businesses. I can say this as someone proud of my American life, and firmly anchored in my American identity. Because inherent to our collective, national identity is the notion of free enterprise and entrepreneurship.
Thus when this new Republican congressional majority convenes in January 2015, they should act. They should pass comprehensive corporate tax reform to ensure U.S. industry maintains its competitive advantage with both the developed countries, and the entire globe.
I would surmise in Middle America, this sentiment resonates with average folks. Societies frown on “tax dodgers.” And, rightfully so. But these companies aren’t dodging taxes. Most firms that don’t pay the legally-mandated 40 percent tax rate are merely taking advantage of an antiquated U.S. tax code to maintain their worldwide competitiveness. Possibly, they’re violating the “spirit” of the law, but they’re doing so to keep their businesses afloat and profitable.
For Republicans and conservative Democrats in Congress, this is a winning issue. The new GOP majorities should strive for a tax code which allows domestic firms to compete with the rest of the world, but generate adequate corporate revenue for Uncle Sam. When our tax rates are juxtaposed against the rest of the world: the deficiency is clear. Our tax code is wholly inadequate to account for a new age of globalized commerce.
Even more, this is where the future of the Republican Party lies. In essence, the GOP’s prospects in 2016 rest in their ability to act in the upcoming-114th Congress. Tax reform is among the issues that they can champion, and win. The American people want reform over inaction in Washington. The gridlock inherent to the 113th Congress must cease. If House and Senate Republicans present comprehensive, level-headed tax reform and the president vetoes the legislation: who will look more even-keeled going into a 2016 presidential contest?
Let’s hope that this new Congress will work towards bolstering free enterprise in the United States. Not only for those at the top, those in America’s corporate boardrooms, and those on Wall Street; but, for those on Main Street, for small business, and for American workers. When American business wins, we all win, we all succeed. America is the best place in the world to do business, let’s ensure our tax code reflects that.
Nicholas A. Rudnik is currently pursuing a degree in political science with a concentration in American politics at Valdosta State University. Previously, he’s served as a congressional page in the U.S. House of Representatives during the 111th Congress and in the Office of U.S. Congressman Sanford Bishop. Further, Nick has served on staff at an institutional interest group, the Association of American Law Schools, in Washington and has worked in the private sector. He has presented his research, focused primarily on congressional parties and elections, at regional academic conferences and hopes to pursue a graduate degree in political science. Nick is currently completing two manuscripts relating to southern congressional elections and judicial decision-making in the area of campaign finance; he can be contacted via e-mail at email@example.com. Follow Nick on Twitter: @NickRudnik.