Thursday, February 2, 2012

Taxes and Competitiveness

There's an article on Industry Week's site saying we need to drop corporate taxes in order to be competitive. However, it just deals with a single issue: tax rates in comparison to other nations. It doesn't ask what the results may have been.

For example, we're ranked number 2 (bad) in corporate taxes. Over the last 50 years, our GDP growth rate has been 3.6%. The UK, which is ranked lower (good), has suffered with 1.6% over the past 50 years, according to Trading Economics Analysis ( France started out strongly in this comparison period with a growth rate 50% higher than the US's, but now lags by 33% roughly (according to a Stanford paper). Both France and the UK have dropped corporate tax rates in this period.

The Industry Week article states that our corporate tax competitiveness was better in the first decades in this comparison period. One could also say that the other national economies had a chance at tremendous growth with continued rebuilding of industry following world-wide decimation of war (almost everywhere but North America). Also, China only has 30 years of experience with market-oriented economy instead of a centrally planned model.

Although with the little bit of comparison data, you could say that as the other countries have dropped their tax rates on corporations, their competitiveness and growth has also decreased. Hmmm, this is interesting. Maybe it's as Inigo Montoya says in The Princess Bride: "I do not think that means what you think it means." Perhaps looking at corporate tax rates in isolation leads us to conclusions that we do not really want. Or there's really no correlation between tax rates and overall competitiveness/growth.

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