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Corporate Tax Cuts: Examining the Record in Other Countries

Summary:
At 35 percent, the United States has the highest statutory corporate income tax rate among advanced economies, and this high rate coexists with a number of large preferences and exceptions. Reform of the widely criticized corporate tax is among the top agenda items of the Trump administration and the Republican leadership of Congress, and even many Democrats say the time has come to revamp the tax to make US-based multinational corporations more competitive in the global economy. Djankov analyzes episodes of tax rate cuts in other advanced economies and finds that radical corporate tax cuts, of 15 or more percentage points, are rare, but modest cuts of about 10 percentage points are possible in normal economic conditions and practical to implement as they do not trigger large fiscal

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At 35 percent, the United States has the highest statutory corporate income tax rate among advanced economies, and this high rate coexists with a number of large preferences and exceptions. Reform of the widely criticized corporate tax is among the top agenda items of the Trump administration and the Republican leadership of Congress, and even many Democrats say the time has come to revamp the tax to make US-based multinational corporations more competitive in the global economy. Djankov analyzes episodes of tax rate cuts in other advanced economies and finds that radical corporate tax cuts, of 15 or more percentage points, are rare, but modest cuts of about 10 percentage points are possible in normal economic conditions and practical to implement as they do not trigger large fiscal imbalances. He concludes that a US corporate income tax cut of 10 to 15 percentage points—from 35 percent to 20 to 25 percent at the federal level—would bring the US rate in line with the average rate (23 percent) among other advanced economies. 

Simeon Djankov
Simeon Djankov, nonresident senior fellow at the Peterson Institute for International Economics, was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. In this capacity, he represented his country at the Ecofin meetings of finance ministers in Brussels. Prior to his cabinet appointment, Djankov was chief economist of the finance and private sector vice presidency of the World Bank.

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