Lessons for US Business Tax Reform from International Tax Rates

With the election of Donald Trump and a Republican Congress, business tax reform seems a likely bet for 2017. International tax rate comparisons using a new dataset from Thomson Reuters highlight the unfavorable disparity between US corporate tax rates and practices in other advanced economies: The US actual average tax rate, calculated from the dataset at 31.1 percent—even after taking various credits, deductions, and “loopholes” into consideration—is higher than the simple average of foreign groups at 28.1 percent. Comprehensive corporate tax reform, headlined by a cut in the corporate tax rate, should be a priority for the incoming administration and Congress to spur investment and make the United States a more attractive location both for domestic and foreign investment. However, fiscal deficits associated with business tax reform, together with the stimulus to investment, will likely drive up the dollar exchange rate and increase the US trade deficit unless strong offsetting measures are part of the reform package.