Tax Analysts Blog

Obama's Rate Cut: How Low Can You Go?

Posted on Feb 22, 2012

President Obama's newly released 'framework' for corporate tax reform envisions a significant rate cut for U.S. firms. You can read the details by clicking here. His basic idea is to lower the statutory rate from 35% to 28%. He's vague on the details of how to pay for the rate cut -- but let's ignore that for now.

Everyone is asking whether the 28% rate is low enough for U.S. firms to compete against global rivals. To answer this question we must compare the U.S. rate to those of our major trade partners. The most useful comparison is to other OECD member states.

To that end, we've compiled a chart listing the 34 OECD nations and their corresponding corporate rates. To ensure an apples-to-apples comparison we've include various supplemental and sub-national taxes on corporate income. That's why the current U.S. rate is listed at 39.5%. (We've taken the 35% federal rate and added state-level taxes, using a weighted average of 4.5%).

Currently the U.S. has the second highest rate among OECD countries, surpassed only by Japan. And that's about to change; Japan has a rate cut set to take effect this spring. [Note: Japan's move will soon leave the U.S. with the highest rate in the OECD, and probably the rest of the world as well.]

Where would the U.S. rank if Obama's proposal were enacted into law? Let's have a look.

Country Combined (federal/local)
corporate tax rate, %
Australia 30.0
Austria 25.0
Belgium 34.0 ***
Canada 29.5
Chile 17.0
Czech Republic 19.0
Denmark 25.0
Finland 26.0
France 34.4 ***
Germany 30.2
Greece 24.0
Hungary 19.0
Iceland 15.0
Ireland 12.5
Italy 27.5
Japan 40.7 (to 38% in 2012) ***
Korea 24.2
Luxembourg 28.6
Mexico 30.0
Netherlands 25.5
New Zealand 30.0
Norway 28.0
Poland 19.0
Portugal 26.5
Slovakia 19.0
Spain 30.0
Sweden 26.3
Switzerland 21.2
Turkey 20.0
United Kingdom 28.0
United States 39.5 (to 32.5% ???)

Based on this projection, Obama's framework leaves us at 32.5% (28% plus the state average). That would be the fourth highest rate in the OECD, trailing only Japan, France, and Belgium.

Expect the business community to give the President a nod for his acknowledgement that our current rate is too high ... but don't expect them to be satisfied. Even with this change we'd be far above the average for similarly situated countries.

Finally, it must be noted that this comparative analysis focuses only on statutory tax rates. The effective rates that firms actually pay are much lower due to myriad deductions, credits, exclusions, and timing differences. But that's a topic for another day.

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