Why Japan Dropped Their Tax Rate

(Click for AUDIO VERSION)

As high as American corporate tax rates have been over the years we could always count on the Japanese to post higher rates thereby making us look not too bad. Unfortunately, this all changed recently when Japan announced they were dropping their rates leaving America alone at the top with the highest tax rates in the world. Actually, most corporate tax rates in other countries have been retreating over the last ten years in order to attract talent to their shores and promote existing businesses. To illustrate, consider how the "Combined Corporate Tax Rates" have changed over the last decade in these key countries:

Source: OECD (Organization for Economic Co-operation and Development), Centre for Tax Policy and Administration

Canada's reduction has allowed them to escape the recession and resulted in boom times for the country. It is no coincidence that Canada's drop in unemployment (from a high of 8.7% in 2009 to 7.2% as of March 2012) parallels a decline in the corporate tax rates for the same period (from 31.02% to 27.6%). Likewise, German manufacturing has grown and surpassed the United States as the #2 exporter in the world (behind China at #1). It should therefore come as no surprise that Japan finally followed suit in an attempt to unshackle business and encourage commerce.

What about America? It is highly unlikely corporate tax cuts are in the offing as the country is saddled with an administration who vilifies American business as greedy and corrupt. If anything, the President and his party want to raise taxes thereby stifling businesses from world competition. What about all of the corporate "loopholes" we've heard about? Actually, such deductions mostly consist of research and development, along with expansion of facilities, which naturally encourages business and jobs. Even after all of these "loopholes" though, American businesses pay more in corporate taxes than their counterparts in other countries. That is a fact regardless of how you spin the numbers.

The new #2 behind the United States is France with a corporate tax rate of 34.4% (36.43% in 2001), almost five full percentage points less than the United States.

As these other countries have come to realize, the world is a competitive place and you cannot succeed by taxing people and companies to excess. In fact, their message is simple: unshackle them from the tax burden and stand out of their way.

"Common sense told us that when you put a big tax on something, the people will produce less of it. So we cut the people's tax rates, and the people produced more than ever before."
- Ronald Reagan

For an interesting video on this subject, click HERE.

Keep the Faith!

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Copyright © 2012 by Tim Bryce. All rights reserved.