Taxes are a crucial component of a country’s international competitiveness. In today’s globalized economy, the structure of a country’s tax code is an important factor for businesses when they decide where to invest, how much to invest, and which types of operations to locate in which countries. No longer can a country levy high taxes on business investment and activity without adversely affecting its economic performance. In recent years, many countries have recognized this fact and have moved to reform their tax codes to be more competitive. However, others have failed to do so and are falling behind the global movement.
The United States provides a good example of an uncompetitive tax code. The last major change to the U.S. tax code occurred 29 years ago as part of the Tax Reform Act of 1986, when Congress reduced the top marginal corporate income tax rate from 46 percent to 34 percent in an attempt to make U.S. corporations more competitive domestically and overseas. Since then, member countries of the Organisation for Economic Co-operation and Development (OECD) have followed suit, reducing the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today. In 1993, the U.S. government moved in the opposite direction, raising its top marginal corporate rate to 35 percent. The result: the United States now has the highest corporate income tax rate in the industrialized world.