2011 marks the 20th year in which the U.S. statutory tax rate has been above the simple average of non-U.S. countries in the Organization for Economic Cooperation and Development (OECD). With a combined federal and state corporate tax rate of 39.2 percent, the U.S. has the second-highest overall rate among OECD nations. Only Japan, with a combined rate of 39.5 is higher. But this will soon change. Japan is planning to reduce its national rate by 4.5 percentage points, which will bring its overall rate to below 35 percent.
As of January, Canada had already reduced its tax rate from 18 to 16.5 percent. the U.K. rate will fall from 28 percent to 27 percent as a first step of a multi-year plan to lower the British rate to 24 percent by 2014. America’s biggest economic competitor, China, lowered its corporate tax rate from 33.3 percent to 25 percent in 2008.
Critics argue that due to exemptions and allowances the effective rate for U.S. companies is lower. For manufacturers and others with historical assets to depreciate that may be true, but for younger companies whose assets are mostly intellectual property that isn’t the case, according to Tax Foundation president Scott Hodge. Companies like P&G and Dow Chemical may pay at lower effective rates, but for companies like Apple, Netflix or Google—the ones more likely to expand or boost their employment—statutory rates matter.