Corporate Law Blog

Corporate tax rates in the U.S. are arguably too high

There have been arguments made that corporate taxation should be greatly reduced in the United States. Part of the reason is that these corporate taxes encourage businesses to merge with foreign entities or engage in other strategies that will reduce their tax liability. The end result is that more American jobs are lost.

At a federal level, corporations pay a marginal tax rate of 35 percent. When taking into account state taxes that these businesses pay, this rate is increased to 39.2 percent. This means that the U.S. has the highest corporate tax rate of the free market countries that are developed throughout the world. The global average is 25 percent.

U.S. companies also pay a double tax on foreign-earned income since the U.S. government taxes income that corporations earn abroad as well as at home. This is also at odds with the way other developed countries in the world operate. It also gives a competitive advantage to corporations abroad in that these foreign companies are not subjected to double taxation. Instead of facing such circumstances, many businesses are simply choosing the lowest-cost option by locating elsewhere. It also encourages businesses to spend rather than save in order to write-off business-related expenses.

The tax code is complex and difficult to reform. Therefore it's unlikely that we will see changes in the near future. As attorneys located in Kentucky we would like to see corporations stay put and therefore will assist companies in locating every opportunity to reduce their state and federal taxes so these companies can remain competitive.

Source: Investopedia, "Do U.S. High Corporate Tax Rates Hurt Americans?" Amy Fontinelle, May 16, 2014