Wednesday, November 14, 2012

Global Competitiveness, Ctd.

Two very timely updates since last night's post on US corporate taxes and global competitiveness:
  • Cause. First, the National Federation of Independent Business, the main trade association for small businesses in the United States, highlights other aspects of the Ernst and Young study that I mentioned last night: "New data released today by Ernst and Young shows tax increases shows that allowing the top two tax rates to increase, as has been proposed by President Obama and many Members of Congress, would greatly impact small businesses. The preliminary results of the study show business owners paying the top two rates account for: 72 percent of all S corporation income; 61 percent of all partnership income; and 13 percent of all sole proprietorship income. Subchapter S corporations, partnerships, LLCs, and sole proprietorships are all considered "pass-through' businesses for tax purposes, in which business income is taxed at the individual rates. NFIB research shows three-quarters of small businesses are organized in such a manner. In addition to this week's Ernst and Young data, the Congressional Joint Committee on Taxation recently published research that estimates around 53 percent of business income would be impacted allowing tax relief to expire on the top two individual brackets, impacting an estimated 940,000 who earn business income.  

  • Effect.  Second, we see the real world effects of the US government's inability to reform its painful, arcane tax and regulatory policies: "Cisco CEO John Chambers says there’s one place in the world where doing business is easy – and it’s not the U.S.  Canada, he told analysts during a Tuesday conference call, is “the easiest place to do business." "It doesn’t matter which party is in power, even in their provinces, i.e. their states... leaders in Ottawa get it,” he said. “They drive down through and make it very easy to do business there. You’re going to see us grow our business there as well as invest overall."   In case you've forgotten, Canada has repeatedly lowered its corporate tax rate over the last several years, and it now stands at 15% - a full 20 percentage points lower than the federal statutory corporate tax rate in the United States.  Oof.

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