As the World Turns
At a time when most legislative initiatives in the U.S. grind to a halt, in large part because political jockeying replaces policymaking as the presidential and congressional elections draw closer, America continues to fall behind our biggest economic competitors. Foreign governments continue to pursue policies that will improve their country’s economic prospects while our lawmakers seem frozen in place. Yesterday’s announcement that the Australian government, led by Prime Minister Julia Gilard, will propose a cut in the corporate tax rate makes Australia the latest in a long line of countries to recognize the economic benefits of reducing the rate.
The move underscores the already arcane and increasingly isolated nature of America’s corporate tax policy. In March, the U.S. gained the unenviable distinction of having the world’s highest corporate tax rate. Firms operating Down Under already pay less tax – five percentage points lower -- than those operating here, and the proposed rate cut will only drive more business and investment opportunities to Australia. The fact that the U.S. has not undertaken substantive tax reform since 1986 means that American companies have become more and more disadvantaged over the years, while their foreign counterparts reap the rewards of their governments’ proactive, pro-business policies.
Australia has followed the recent examples of other countries which are smartly cutting taxes to boost job creation and strengthen their economies. In April, the UK cuts its corporate tax rate to 24 percent, while Thailand recently lowered its rate to 20 percent and Sweden announced that its rate would be reduced to 24 percent in September. Even Ireland, with its current fiscal woes, has no plansto increase its 12.5 percent corporate rate because of its importance to the country’s economic recovery.
It is often said that gridlock in the U.S. political system on key issues is inevitable, especially during the election cycle, while parliamentary systems have an easier time passing legislation. Yet, it is worth noting that both the UK and Australian governments made their announcements amid extremely volatile economic and political circumstances. The UK government faced serious questions over the trajectory of its economic policy when the country re-entered a recession, while the Australian prime minister just recently faced down a tough internal leadership challenge. Despite these pressures, both governments took forward-thinking actions that will benefit their countries in the long run, when it would have been more politically expedient to kick the can down the road. Given these circumstances, inaction by the U.S. government is simply inexcusable.
Congress must realize that now is not the time to take a six-month hiatus from leadership. U.S. job growth is slowing and the American people have a growing unease about the country’s economic future. Cutting the corporate tax rate and moving to a more competitive system would be a huge boost for the country. These steps would help to level the field for U.S. companies trying to keep people employed here at home. It is time for the U.S. government to wake up to the realities and challenges of the global economy. The world is turning, and the U.S. must move with it.
Bret Wincup is Director of Government Relations for the Information Technology Industry Council (ITI).