Corporate Tax Reform Would Benefit Nation, Workers

Abstract View of Urban Scene and Skyscrapers

Lawmakers and candidates on all sides of the political spectrum acknowledge reforming America’s corporate tax rate is overdue. President Obama has even suggested reducing the rate from 35% to 28%. Writing for Reason, Veronique de Rugy of the Mercatus Center sums up the necessity for this, concluding it’s an optimal way to benefit both businesses and the workforce:

Even such high-tax nations as France have lower rates. However, the real competition comes from Canada (26.1 percent), Denmark (25 percent), the United Kingdom (20 percent) and the many countries, such as Ireland (12.5 percent), with rates below 20 percent. Moreover, competition is intensifying. Last June, the U.K. announced that it would cut its rate from 20 percent to 18 percent in the next five years. It’s now saying that it will lower the rate even further, to 17 percent. These reductions are the final stage of drastic cuts implemented since 2007, when the country’s companies faced a 30 percent tax rate. That’s a second wave of reduction since the rate was as high as 54 percent in the 1980s.

Now contrast this with the United States. In the 1980s, policymakers responded to the pressure put on by many countries lowering their corporate rates by decreasing America’s rate from 49.7 percent to 33 percent. However, since then, the U.S. has fallen asleep on the switch (and even raised the rate by 1 percentage point in the 1990s) and is now widely out of sync with internal competition. In 2015, the average corporate rate for countries in the Organisation for Economic Co-operation and Development was 25 percent, down from 48 percent in the early 1980s.

As if that were not enough competition for American companies, the U.S. government burdens them with another layer by taxing them on a worldwide basis. In that system, income from American companies is subject to U.S. taxes whether it’s earned in Seattle, Paris or Singapore. By contrast, most wealthy countries don’t tax foreign business income; about half of OECD nations have “territorial” systems that tax firms only on domestic income. In other words, U.S. exporters face a much less competitive tax system than most of their biggest competitors…

Not everyone would like to reduce taxes on corporations, but everyone should. The data show that most of the corporate tax burden is actually shifted to workers, who end up shouldering the tax in the form of lower wages. With the U.K. taking further measures to reduce its burden on corporations, boosting its workers’ wages and inflicting yet another blow to U.S. competitiveness, Congress should do what’s right by reforming the corporate tax. It may be the one bipartisan issue out there. All we need is leadership.

Color Coding Your Fate

Well, this is certainly one way to do things. Following a merger, staffers at one UK company were notified of their job security with a simple color-coded message… in front of everyone. Yikes. The Telegraph reports:

All 16,000 employees of Everything Everywhere, the mobile phone company created by the merger of Orange and T-Mobile, were told last month whether or not their jobs were safe at mass meetings across the country.

Up to 1,200 middle managers and back office staff who could lose their jobs by the end of the Christmas holidays were shown a red light and told they were "at risk". Other staff saw the light go yellow, which meant they must re-apply for their existing job. Some 30pc of these roles face the axe under current proposals.

A blue light indicated their job had been "mapped" into the new business plan and were being kept on. A green light showed the creation of a limited number of new roles.

The presentations were made in public in front of between 30-60 colleagues. Some employees are thought to have had no idea that their jobs were at risk before the humiliating public meeting. One employee said: "Some of the people got up and walked straight out of the room, others sat there crying, others were absolutely dumbstruck."

Everything Everywhere said: "Wherever possible, members of our senior management team explained the proposed changes at face-to-face meetings to ensure teams received the information consistently and had the opportunity to ask questions." The company has entered into a 90-day consultation period.

We’re No. 2 … in Economic Ranking

The World Economic Forum takes Geneva over Washington in its latest global competitiveness report. In other words, Switzerland tops the United States in the ranking of world economies. It is the first time out of the No. 1 spot for the U.S. since the rankings were revised in 2004.

Why the downgrade? The report cites banking system troubles, concerns about the "government’s ability to maintain distance from the private sector" and doubts about firms’ auditing and reporting standards.

The Swiss, who also dipped into recession and had to bail out their largest bank (UBS), were lauded for "capacity to innovate, sophisticated business culture, effective public services, excellent infrastructure and well-functioning goods markets."

In the banking category, Canada led the way. The U.S. was 108th (behind Tanzania) and the British 126th.

Public data and an executive opinion survey are used to compile the rankings. Behind the Swiss and the Americans are: Singapore, Sweden, Denmark, Finland, Germany, Japan, Canada and the Netherlands.

At the bottom were African countries Zimbabwe and Burundi. For Zimbabwe, the report cited "corruption, basic government inefficiency and the complete absence of property rights."

Irish Eyes Still Smiling on Business

Mark Esper at the U.S. Chamber (to which we have no affiliation — but many similar objectives, btw) recently offered a blog post about hosting a luncheon for Mary Coughlan, Ireland’s Minister for Enterprise, Trade, and Employment. What’s interesting is not only the work Ireland is doing to enhance its business community, but also how strongly the country’s economy is linked to Americans: 

During her remarks, Ms. Coughlan noted that 45% of all FDI (Foreign Direct Investment) into Ireland comes from the U.S. This should come as no surprise, she added, since Ireland offers a highly pro-business environment: flexible workforce, low taxes, and limited bureaucracy, to name a few things. Ms. Coughlan commented that the government of Ireland is working on all necessary fronts to maintain this pro-business momentum, including an enhanced focus on the need to sustain employment by investing in science, technology and innovation.

In addition, she spoke of recent economic reforms that Ireland has taken in light of the current global financial crisis. These include pursuing smarter regulations, expanding government investment in infrastructure and education, and creating a clearer and simpler tax system. Ms. Coughlan’s comments, as I noted during the luncheon, aligned with the business priorities that espoused here at the U.S. Chamber.

Our own Rebecca Patrick also penned an interesting BizVoice story in 2007 about Ireland’s business-related efforts that will offer more background.

Indy Airport Working Toward More International Flights

New Indianapolis Airport Authority Executive Director/CEO John Clark is looking at bringing more international flights to the state capital, which may be music to the ears of the state’s business community. Namely, he’s looking into more flights between Indianapolis and the European Union, which should also appeal to those who enjoy Oktoberfest, the Emerald Isle, and English food (ok, maybe just the first two).

Clark discusses with Gerry Dick of Inside Indiana Business. Watch the video here.

Luigi Loves the Classics

So you still think Nintendo rots your brain? Well, for further proof that these are indeed some crazy, crazy times, the portable Nintendo DS now features the ability to download your own library of literature to take with you on the go. The UK’s Times Online explains the capabilities in an article aptly titled, "Mario Makes Way for Shakespeare in Harper Collins Deal":

The 100 Classic Book Collection ranges from Shakespeare and Dickens to Jane Austen and the Brontë sisters. It will cost about £20 and will be available initially only in Britain.

Readers will turn the pages by brushing a finger across the screen. If the collection is a success, Nintendo may expand the range of books available.

Other technology giants are trying to gain the upper hand in the rush towards reading books on screen. The Sony Reader, which can hold about 160 titles, was released in September. Users can choose from thousands of titles to down-load from Waterstones’ website.

No word yet about the potential global portability of my domination of anyone who dares to challenge me in Super Tecmo Bowl, but baby steps are fine at this point. 

Some Good Economic News for a Change

Economic hardships aside, small and mid-sized companies in a recent survey expressed cautious optimism about their business prospects over the next year. They weren’t as positive about technology spending, to the chagrin of the Computing Technology Industry Association (CompTIA), which conducted the survey.

Key results:

  • Eighty-five percent of the 772 companies in the U.S., Canada and U.K. plan to hire new employees; 54% expect revenue growth of at least 10%; and 40% are looking to add new business locations.
  • On the information technology side, 51% intend to spend more while 49% see flat or declining tech expenditures. This compares to 62% planning tech spending increases in the previous year’s survey.

It’s been reported for years that small businesses provide nearly all the net job growth. It doesn’t look like that is going to change based on these results.

Time to Lower Federal Corporate Income Rate

If tax rates can in fact be said to influence where companies locate and invest, the U.S. has a problem. As our economy becomes increasingly global our combined (federal and provincial/state) income tax rate is higher than every other country in the world, except Japan. Both presidential candidates have recognized the need to do something. Sen. John McCain proposes a significant reduction of the current 35% federal rate to 25%. Although coupled with other proposals and not nearly as definite or assertive, Sen. Barack Obama also indicated he is open to lowering the rates.

The U.S. can’t afford to ignore what most other industrialized countries have already figured out: the corporate income tax rates affect investment. This year China dropped its rate from 33% to 25%; and Taiwan, Hong Kong and Korea, which already had much lower rates than the U.S., dropped theirs even more. And it is not just in Asia. The adjustments swept Europe with Germany, Italy, the U.K. and Spain all making rate reductions. It is truly a global thing. Other countries that are part of the wave of cuts: Turkey, Bulgaria, Israel, South Africa and Colombia.

So with so much talk of change in other contexts, it is important to point out that it is also time for a change to our corporate tax rate. A full listing of the corporate rates in nations belonging to the Organization for Economic Cooperation and Development, along with other revealing information on this subject is available from the Tax Foundation.