- Post 16 April 2012
- By Mike Brownfield | The Heritage Foundation
There aren’t many American-owned companies more iconic than Anheuser-Busch, the famous producer of Budweiser beer based in St. Louis, Missouri. That was true up until 2008, when the Brazilian-Belgian company InBev executed a hostile takeover of the historic brewer, leading to layoffs of more than 1,800 workers. Unfortunately, conditions in the United States are growing ripe for even more takeovers like these to occur, especially now that the nation’s corporate tax rate is officially the highest in the world.
As of yesterday, the U.S. corporate tax rate of 39.2 percent claimed the world’s top spot, edging out Japan which recently lowered its rate from 39.5 percent to 36.8 percent. (The U.S. rate includes the 35 percent federal rate plus the average rate the states add on.) That’s well above the 25 percent average of other developed nations. Heritage’s Curtis Dubay explains the impact on companies based in the United States:
This gaping disparity means every other country that we compete with for new investment is better situated to land that new investment and the jobs that come with it, because the after-tax return from that investment promises to be higher in those lower-taxed nations.
Our high rate also makes our businesses prime targets for takeovers by businesses headquartered in foreign countries, because their worldwide profits are no longer subject to the highest-in-the-world U.S. corporate tax rate. Until Congress cuts the rate, more and more iconic U.S. businesses such as Anheuser-Busch will be bought by their foreign competitors.
Unfortunately, in the face of this tax rate, the Obama Administration is proposing measures that will make matters even worse for U.S. companies. Last week, Vice President Joe Biden proposed a “global minimum tax” in a wrongheaded effort to encourage companies to invest in the United States instead of overseas. Just like the rest of President Obama’s corporate tax policy, it will just make matters worse — punishing firms that seek new opportunities in growing markets by taxing their earnings in those developing markets even more heavily than they’re already taxed. The net result will be to make it even more likely that the companies’ assets would go up for sale to overseas firms in order to escape the Obama tax penalty. Unfortunately, America’s workers pay the price for this destructive tax policy. Heritage’s J.D. Foster explains why:
Economists and policymakers increasingly understand that while the tax is paid almost exclusively out of profits that would otherwise go to the shareholders, the true economic burden falls primarily on workers.
The reason is simply that the higher the effective corporate tax burden, the higher the hurdle rate on corporate investment. (The hurdle rate is the minimum rate a business must earn on investment to make the investment.) The higher the hurdle rate, the less investment takes place. The less investment takes place, the slower labor productivity grows, and the slower labor productivity grows, the slower wages grow.
Congress should act now to help make America more competitive on the global stage, and it can do so by reducing the corporate tax rate to match or preferably fall below the international average. The U.S. economy is struggling to recover from the global recession, and by lifting the burden of record-high corporate tax rates, Congress can give American companies incentive to grow and expand here at home. If not, the American people can expect to see more companies like Anheuser-Busch bought up by international competitors — and the jobs will go right along with them.
Mike Brownfield is Assistant Director of Strategic Communications at The Heritage Foundation. He serves as editor of The Foundry, Heritage's public policy news blog, as well as the "Morning Bell," one of Washington’s most widely read and influential e-newsletters. Mike hails from Southeast Michigan and practiced law in Chicago, Illinois.
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