Look at the next decade, not the next quarter

In 1960, America was home to 18 of the world’s 20 largest corporations. By 1996, however, only eight of the world’s 20 largest companies were based in America. So, before we run around congratulating ourselves on any economic stimulus package, we ought to address this jarring trend that is far more dangerous to American prosperity than next quarter’s economic forecast.

The simple fact is the United States can stem the tide of American businesses moving abroad. The train has not left the station on a one-way ticket to China, India or even Europe for that matter. The answer is fairly simple and straightforward: Reduce the corporate tax rate.

Some lawmakers will shudder at the thought of cutting the corporate tax rate. These folks will use old refrains like “corporate welfare” or “unjustified tax cuts for big business” to scare Americans from embracing changes desperately needed to keep pace in this dynamic global marketplace. While America continues to lead the way in terms of economic output and low employment, we are falling behind — way behind — other countries in terms of our international competitiveness.

In December the Treasury Department released a staggering report that should serve as a wake-up call to my colleagues.

The report found that among all countries in the Organization for Economic Cooperation and Development (OECD), the United States has the second highest corporate tax rate, just barely behind Japan. The average corporate tax rate among OECD countries is 31 percent; the U.S. rate is a whopping 39 percent, trailing Japan’s 40 percent.

As chairman of the Ways and Means Subcommittee on Select Revenue Measures last Congress, one of the issues I wanted to dig into was how American businesses stacked up against foreign-owned firms. Let’s just say it was not the most uplifting experience.

During one of the hearings I convened I had Craig Barrett, chairman of Intel Corp., testify on the subject of international tax reform. In his prepared remarks Mr. Barrett said that “the marketplace is global, and so is our competition … As a result of this change in the competitive environment, a critical issue we must now consider when deciding where to locate a new wafer fabrication plant is that it costs $1 billion more to build, equip and operate a factory in the U.S. than it does outside the U.S. The largest portion of this cost difference is attributable to taxes.”

So, the question for Intel is not whether to build a new wafer fabrication plant, but where to build the new plant. Taxes pay a big part in executive decision-making. Not surprisingly, Intel has a facility in Ireland, where the corporate tax rate is 12.5 percent.

While the U.S. has stood still, Germany, Italy, Canada and Belgium (to name just a few) have all cut their tax rates below ours. Just six years ago all of these countries had higher corporate tax rates than the United States. The Tax Foundation points out that the U.S. has kept the same rate structure in place for 12 years. Such stagnation has bestowed us with the dubious distinction of being only one of two countries in the OECD not to reduce its corporate tax rate from 1994 to 2006, and one of only six OECD countries without a rate cut between 2000 and 2006.

By reducing the corporate tax rate to, for example, the OECD average rate of 31 percent, the United States can compete for jobs in this increasingly shrinking world of commerce. Lower taxes will lead to new investment in the United States and higher corporate tax receipts (yes, you read that right), and will keep more American firms here at home rather than their moving offshore.

While there are reams of studies, research papers and testimony that recommend the United States lower its corporate tax rate, the idea is falling on deaf ears in this Nancy Pelosi-controlled House.

The United States is standing alone in the world while other countries are lowering their corporate tax rates and reaping the resulting economic growth. It’s time Washington looks outside the Beltway and see what the rest of the developed world is doing. And, it is time we focus on the economy for the long term, not just the short term.

Camp is a member of the House Ways and Means Committee.