So, You Want To Make U.S. Companies More Competitive?

There’s a big hullabaloo going on down in Washington right now about making America more “competitive.” Much of the hubbub centers around President Bush’s powerful Treasury man, Henry Paulson. He’s been busy holding conferences and writing various op-ed pieces on the subject.

If the Treasury Department and Congress are really serious, and really want to do something concrete and long-lasting to dramatically improve American competitiveness, then let’s cut to the chase. Let’s aim for the heart of the problem. Any lasting change requires rolling up our collective sleeve and dealing with the over taxation of American businesses.

We should not bat an eye at reducing the 35 percent federal corporate tax rate.

And, while we’re at it, we should cut the corporate capital gains tax rate as well. Loews CEO James Tisch, who is justifiably concerned about our long-term competitiveness, is pushing this latter proposal. He believes that hundreds of billions of languishing corporate asset dollars would be unlocked and reinvested if this were to occur. He’s right. The result would be an inevitable infusion of new oxygen into the corporate bloodstream. It would create new businesses and greatly expand existing ones. All this would of course create tens of thousands of new jobs for American workers, not to mention a tidal wave of new tax receipts at Treasury.

Right now, the US and Japan are the flag bearers of the highest corporate tax rates in the world. (When one includes state taxes, the US rate is actually higher—40 percent). Yet, the EU average according to Washington policy analyst Dan Clifton is only 27 percent. And virtually every country around the globe is slashing away at their corporate income tax rate. Ireland’s booming economy boasts a corporate tax rate of only 10 percent. Even France comes in lower than the US. It’s quite clear that we have put ourselves at a significant competitive disadvantage in a very palpable, real sense.

High US corporate tax burdens are reducing company investment returns to shareholders and impeding corporate management from a truly competitive after tax return on assets.

What’s more, current US tax law double taxes companies on the profits they make in the US and overseas. Not so in Europe. Across the Atlantic, companies are spared this burden through tax rebates. But our businesses are stuck with this double tax. It not only reduces our competitiveness, it also winds up forcing companies to leave their profits sitting idly overseas to avoid getting hit up twice by the taxman, rather than repatriating them back home for greater domestic investment.

At the end of the day, this country’s bold entrepreneurs understand full well that on an after-tax basis, the money returned from an investment must be significantly greater than the original money invested in order to justify the risk.

The fact is, no so-called “competitiveness action plan” can be complete without full-scale corporate tax reform. Reforming the corporate tax code is the single biggest positive step the government can take to improve American competitiveness.