By every possible metric, one would expect corporate tax rates to be higher in Europe. The burden of government spending is higher across the Atlantic, so that presumably would lead to pressure for a higher corporate tax rate. The affinity for class warfare and anti-business policies is more pronounced in Europe, so that should mean more punitive policies in the Old World.
Yet the corporate tax rate is Europe has now dropped, on average, to less than 25 percent, and the American corporate tax remains at more than 39 percent (including the average of state tax burdens). The latest development in Europe, according to Tax-news.com, is that the Netherlands is reducing its rate to 25 percent.
Dutch Finance Minister Jan Kees de Jager has unveiled key details of the country’s 2011 tax plan, containing a number of fiscal measures designed to encourage entrepreneurship and innovation… The 2011 tax plan includes plans to reduce corporation tax in 2011 to 25%. The government also plans to make permanent the reduced rate 20% corporate tax rate on the first EUR200,000 in profit, announced last year and retroactive to 2008. In addition, companies will significantly benefit from the extension by one year of the temporary three-year loss carry-back facility (previously losses could be carried back for just one year) as well as the extension of the temporary accelerated depreciation scheme, which allows certain capital assets to be depreciated at 50% per year, to investments made in 2011 as well as those made in 2009 and 2010.
So why is Europe moving in the right direction on this issue and America lagging? The simple (and accurate) answer is tax competition. Governments are lowering tax rates because politicians think that is their only option if they want to attract jobs and investment. Europe’s economies are so interconnected and cross-border mobility of jobs and investment is so large that politicians are being forced to do the right thing, even though all their normal impulses are the opposite. This video explains, followed by a video showing why corporate tax rates should be lower.
[…] the opposite of Europe, to be sure, but there are a small handful of other areas – including corporate tax rates, Social Security, and privatized postal services – where various European countries are ahead […]
[…] I’m not surprised to see Switzerland on that list since that nation has some very sensible fiscal policies. And the Netherlands, notwithstanding its welfare state and long-run fiscal challenges, is very focused on global competitiveness. […]
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[…] I’m not surprised to see Switzerland on that list since that nation has some very sensible fiscal policies. And the Netherlands, notwithstanding its welfare state and long-run fiscal challenges, is very focused on global competitiveness. […]
[…] I’m not surprised to see Switzerland on that list since that nation has some very sensible fiscal policies. And the Netherlands, notwithstanding its welfare state and long-run fiscal challenges, is very focused on global competitiveness. […]
[…] But not completely happy. I should have said that the average corporate tax rate around the world is 15 to 17 percentage points below the American level, not 15 to 17 percent, but hopefully people understood the point I was trying to make. […]
[…] States has one of the most punitive corporate tax systems in the developed world. Indeed, every single European welfare state has a lower corporate tax rate than America – even leftists nations such as France and […]
[…] United States has one of the most punitive corporate tax systems in the developed world. Indeed, every singe European welfare state has a lower corporate tax rate than America – even leftists nations such as France and […]
Tax competition? so who’s gonna make this is as opportunity..
That (low corporate taxes in the EU) is indeed an odd thing.
Are you essentially saying that there is tax competition because capital is so mobile while the attachment that individuals typically have to their places of birth, makes population migration more “sticky”?… and thus enables European class warfare to assess confiscatory personal income taxes?
We still have a lower corporate tax rate than Japan. Oh but hasn’t Japan been in a 20 year recession? Oops.