President Trump’s tax plan is light on detail and may never happen but it’s certainly dramatic.
The proposal to slash tax on businesses to 15% would — with one fell swoop — give the United States the lowest headline corporate tax rate of any major economy in the world.
According to the Paris-based Organisation for Economic Co-operation and Development, America’s corporate tax rate of 35% is currently the highest rate levied by any of its 35 member countries. That rate rises to nearly 39% if taxes levied at state level are included.
A review of taxes in the G20, which groups the biggest developed and emerging market economies, tells the same story: U.S. businesses face the highest top rate.
In a report released in March, the Congressional Budget Office cited data from 2012 showing that the comparable rates then for Mexico and Canada were 30% and 26% respectively.
But most American companies pay nothing like those rates for two key reasons: they can take advantage of a host of tax breaks, and profits earned overseas remain untaxed as long as the cash isn’t brought home.
Actual tax rate is much lower
The CBO report showed that the effective rate of corporate tax in America was just under 19%, similar to the amount paid by British companies and slightly lower than firms in Argentina and Japan.
That was still far higher than most countries in the G20, including major trading partners such as China (10%) and Canada (8.5%).
Trump is hoping that a huge tax cut will spur economic growth and make U.S. businesses more competitive internationally. He also wants a low, one-time tax on $2.6 trillion of profits earned overseas that have never been repatriated with the aim of encouraging U.S. multinationals to invest some of that cash in America.
The tax plan outlined Wednesday leaves many questions unanswered and faces skepticism among lawmakers, even though Republicans control Congress, because it’s far from clear how Trump plans to pay for the tax cuts.