Corporate
Tax Reform.
In the global battle for business, America is losing because its
corporate tax rate discourages investment in the U.S. economy. The reason is
quite simple: U.S. corporate tax rates are high by international
standards. According to the OECD, the top U.S. corporate tax rate (federal and
average state rate combined) was 39.1 percent in 2009, second highest among the
30 OECD countries after Japan (39.5 percent), and roughly 50 percent higher
than the average for the other 29 OECD countries (25.9 percent). High corporate
tax rates hinder a country’s investment, productivity and economic growth.
The Obama Administration and Congress have signaled that comprehensive tax reform will be a top priority in 2011 – it must be to create the business environment that encourages investment and job creation in the United States.
Research
and Development.
As
American companies TCC members invest billions in domestic research and
development collectively and intend to continue doing so as long as possible.
The U.S. first adopted the R&D tax credit in 1981. For the past 29 years it
has encouraged American companies to do more domestic research and hire more
scientists and engineers. Impressed by its effectiveness, other nations copied
the legislation and introduced their own credits to attract investment to their
shores. Over time, the U.S. credit
slipped from the world’s most effective to 24th best, behind such nations as
Japan, China, India and Korea. So while other nations encourage innovators to
hire more research and development staff in their markets, American policy
makers oftentimes effectively discourage such investments through their
inaction and inconsistency.
The R&D credit represents good and effective policy. A recent study by the Information Technology and Innovation Foundation found that increasing the Alternative Simplified Credit to 20% would lead to 162,000 additional jobs created or retained in America, $90 billion in additional economic output and a 0.64% increase in annual productivity. At a time of economic and fiscal uncertainty, it’s important for lawmakers to clearly spell out a long-term policy that includes a permanent extension of the R&D Tax Credit. Doing so would provide businesses with certainty, preserve current jobs, and create new opportunities.