#044 - Tax burden hobbles America in global market - February 24, 2009

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American business carries tax burden into global market

By Ken McIntyre

The White House and Congress are talking about loading more taxes on the backs of American entrepreneurs and investors, who already struggle to keep up with global competitors from India to China and Mexico to Russia.

The typical taxpayer probably would be surprised to learn the United States already has the second-highest corporate taxes among industrialized nations. "We're falling behind by standing still," says Alison Acosta Fraser, director of the Roe Institute for Economic Policy Studies at The Heritage Foundation.

President Barack Obama and congressional leaders propose to let the 2003 tax cuts expire in 2010 and raise taxes on those making more than $250,000 a year -- many of whom own small businesses that are in the global mix.

"President Obama may propose tax hikes not take effect until 2011, but the fact is they already are depressing economic activity in the middle of the recession," Fraser says. "Facing higher future taxes, businesses, investors and savers reduce their activities today."

In 1986, in contrast, other nations followed the U.S. example by cutting tax rates on businesses so they could take risks and create jobs. But America's top corporate tax rate, 35 percent (or 40 percent, counting state taxes), is now the highest among all but one of our 30 largest trading partners -- a sluggish Japan.

We're not talking small potatoes, either. U.S. trade with the 30 countries in 2007 was valued at $2.7 trillion. That's 90 percent of our exports and imports.

Some of the top corporate tax rates among those competitors: India, 34 percent; France, 33 percent; Italy, 31 percent; Saudi Arabia, 30 percent; Germany, 29.5 percent; Mexico, 28 percent; China, 25 percent; Russia, 24 percent.

Our new president and Congress make a grave mistake by failing to reboot economic growth with proven incentives for encouraging Americans to work, save, innovate and invest, Fraser and other Heritage analysts believe.

Reducing the top tax rate on employers and individuals by 10 percentage points -- along with tax relief for middle-class Americans -- would create 1.3 million jobs by next year and over 5 million more by 2014, a study by Heritage's Center for Data Analysis shows.

Struggling employers, many hoping to hire and grow to compete against overseas companies with much smaller tax burdens, would embrace that as real change.

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