The Heritage Foundation - Leadership for America

Tax reform, not reckless government spending, is the way to revive the ailing U.S. economy.

American entrepreneurs and businesses carry heavy taxes on their backs as they compete in the global marketplace, from India to China and Canada to Russia.

Other nations followed the U.S. example in 1986 by cutting tax rates on businesses so they could take risks and create jobs. But America’s top corporate tax rate, 40 percent, is now the highest among all but one of our 30 largest trading partners – a sluggish Japan.

It’s not small potatoes at stake, as Heritage’s Mike Franc notes: Total value of U.S. trade with these 30 countries in 2007 was “a cool $2.7 trillion.” That’s 90 percent of our exports and imports.

“Internationally uncompetitive corporate tax rates, rigidities in the labor market, corruption, and other policy failures often add to the cost of freer trade,” Heritage trade expert Daniella Markheim writes.

President Obama and the new Congress now have an opportunity to reboot economic growth with incentives that encourage all Americans to work, save, innovate and invest.

Here’s what economists at Heritage recommend:

• Reduce the top tax rate on individuals and employers by 10 percentage points.

• Reduce all individual tax rates to only three: 10, 15 and 25 percent.

This real stimulus would boost the economy by $130 billion and create 1.3 million jobs by next year, 4.8 million jobs by the end of 2012.

“Just as we cut taxes for families and small busi­nesses, we need to cut them for corporations as well … and we shouldn’t be afraid to say so,” Sen. Jim DeMint (R-SC) told an audience at Heritage today in outlining his new “American Option” to liberals’ megadebt-creating “economic stimulus.” The DeMint bill incorporates these and several other job-creating tax reforms championed by Heritage.

“Our corporate tax rate is one of the highest in the world, driving invest­ment and jobs overseas,” DeMint said. “Lowering this key rate will unlock trillions of dollars to be invested in America instead of abroad.”

Struggling employers, many hoping to hire and grow to compete with overseas companies, would embrace that as real change.

(Here is a one-page summary of Heritage’s stance on corporate tax rates, with this and another chart, and here is the complete text of DeMint’s remarks on heritage.org.)