Pete Sepp is executive vice president of the National Taxpayers Union.
Sitting atop of the leader board is usually a good place to be. Whether taking a bow among the recently crowned victors of March Madness or earning the ribbon of top student in the class, being "No. 1" is a positive attribute. But there's certainly nothing to cheer in America's capture of the top corporate tax rate among developed nations, especially for Americans seeking relief from high prices at the gas pump. What's the connection? Both economically and politically, it's closer than many of us would think.
As Japan lowers its tax rate and grants the United States the dubious distinction of holding this title, some states within our Union are still involved in a strange race: Places like Hawaii, New Jersey, New York, Maryland, and California have been battling it out to levy the highest taxes on their wealthiest residents.
Raising taxes to record-levels on businesses and individuals is no fix for federal- and state-level fiscal woes. In the short run, some types of tax hikes might lead to cash infusions for government treasuries as a new revenue stream opens. But in due time, that stream can dry up or change course. That's because Americans and their money are mobile, especially among those with considerable financial means. Yet the same can be true on a more modest scale for middle-class Americans. For example, commuters who cross their state's border to get to work might decide to fill up near their jobsite to take advantage of a lower gas tax rate.
And this phenomenon is not unique to the individual taxpayer. Businesses have the incentive to headquarter themselves in states that have lower tax burdens, bringing economic opportunities with them. After Oregon passed tax measures to increase taxes on both corporations and wealthy individuals, Washington and Idaho started wooing CEOs to bring business to their states. Oregon officials later had to downsize their ambitious revenue estimates associated with the tax hikes.
The United States' punitive tax code hurts larger corporations competing on the global scale, too. It is difficult to maintain a competitive edge in key markets when earnings are subjected to higher taxes than companies in other countries face. These issues affect many sectors, but they can be especially acute for energy. Dr. Gary Hufbauer published his research on the effect of U.S. taxation, noting that "the higher tax burden [relative to that of foreign, state-owned enterprises] would diminish the role of US majors in the world energy picture, giving a distinct advantage to competitors such as PetroChina (China), Lukoil (Russia), Petronas (Malaysia), Total (France), and a flock of national oil companies based in the Middle East."
By many measurements, American oil and gas firms already face an uphill climb in the global contest to develop new energy. State-owned companies (which receive all manner of advantages from their government sponsors) control about three-fourths of crude oil production. The U.S. Energy Information Administration conservatively estimates that 12 percent of a gallon of gasoline is attributable to taxes (not including all of the indirect tax-induced overhead of the many entities involved in delivering the product from the ground to the gas pump). The White House is seeking to make the pass-through tax burden worse by taking away commonly available deductions and credits, but only for oil and gas companies. Tie all of these together, and the result is a form of trickle-down tax policy that millions of Americans—motorists, business owners, and those desperate for employment—could definitely do without.
Especially as the United States begins its slow path toward recovery, policymakers should encourage the entrepreneurial spirit to invent, and invest in, new businesses. Finishing first in a contest for worst tax rate means losing—particularly when it comes to the missed opportunities for job creation and economic growth that responsible energy development could bring.