We are constantly hearing about the employment rate, and different factors that affect it. One concern you’ll likely to hear about is that our jobs are being sent overseas. There are many reasons for this but today I’m going to focus on the federal corporate tax rate. Large corporations should be taxed, that’s where all the money is, but to what degree?
The U.S. federal corporate income tax currently sits around 35%, which is a tie for the second highest top-bracket tax rate in the world behind Antigua & Barbuda and Congo. These high corporate tax rates incentivize companies to shift there headquarters and sometime even there whole business over seas. Corporate Tax Rate & Jobs ProCon.org, a nonpartisan, nonprofit website helps put it into perspective;
“Aon, a company with $11.28 billion in 2011 revenue that moved its headquarters from Chicago to London in 2012, said the move would reduce its tax rate by five percentage points, increase its profits by about $100 million annually, and allow them to expand by hiring more employees”.
That’s 100million with only a 5% reduction. Compare that to the corporate tax rates in Ireland that are at only at 12.5% and you too will feel compelled to move your business. Similarly, the 60 minuets episode below points out the tax rates in Zug, Switzerland are as low as 15-16%. This draws in businesses like crazy. The population of Zug is around 26,000 a very low amount considering there are around 36,000 companies in Zug and growing by a rate of around 800 per year.
Zug is an example of companies relocating there headquarters instead of the entire company. This isn’t terrible news because it keeps jobs in the U.S. however it keeps the profits overseas. To bring back the profits the company would have to pay the same 35%, so instead of putting that money back into our economy it remains abroad, where the company opens up new locations creating even more jobs abroad.
Lawmakers on both sides agree that the federal corporate income tax needs to be reformed. An article from the Wall Street Journal states that the Obama administration is seeking to lower the tax to 28% while his republican opposition Mitt Romney has proposed 25%. Either way would this be enough to incentivize companies? Should the US workers be more flexible in traveling abroad for a job? And would we end up loosing or gaining more tax revenue form decreasing the corporate income tax?
A Dram for Your Thoughts 