Today, our economy faces many challenges, but they are far from insurmountable. Our nation has weathered stormy economic periods and emerged stronger than ever.
Over time, the competitiveness of our business environment has played a key role in ensuring economic growth and innovation that generates jobs, wealth, and higher standards of living for Americans. As we look to the path out of these tough times, we need to remember that competition leads to lower prices and better-quality goods and services for the consumer. The last quarter-century is proof that countries with lower tax rates and well-designed tax systems consistently outpace those jurisdictions with high tax rates and onerous double taxation.
At a time when our economy is struggling, we would do well to remember the lessons of history. More than 25 years ago, Ronald Reagan took the helm of an economy that was tanking quickly and bringing American families down with it. The economy was shrinking; inflation was in double digits; more than 7 million Americans were unemployed; and interest rates were through the roof.
Ronald Reagan fought for an aggressive plan to rein in non-defense government spending, provide tax relief, and eliminate unnecessary government regulation. When Reagan left the presidency, tax rates were down. Employment had climbed to record heights — there were more jobs and better, higher-paying jobs. Family income had been on the rise for four straight years. America’s poor were able to climb out of poverty at the fastest rate in more than 10 years.
During Reagan’s presidency, the United States became a low-tax-rate country, dropping its federal corporate tax rate from 46 percent to 34 percent. Among the loudest critics of Reagan’s philosophy of lower taxes and less government regulation were European countries that taxed high to offer more social services to their citizens.
Today, however, the tide has changed. Countries around the world, including in Europe, are racing to cut taxes. They are cutting business taxes in the name of economic growth. That is because tax cuts attract greater business investment with minimal loss of revenue.
Twenty-eight nations belonging to the Organization for Economic Cooperation and Development (OECD) and at least 20 non-OECD nations have learned the importance of adopting corporate tax rates lower than ours, but we have forgotten. The United States now sits in the position of having the second-highest statutory tax rate among OECD nations. Even though the effective tax rate for individual corporations is often lower than the federal statutory rate of 35 percent, companies must spend too much valuable time and resources navigating our complex tax code in order to find occasional relief. American businesses also face the challenge of varied corporate taxes levied by individual states.
We have to understand that American workers and businesses are competing at a global level today. Our growth is stifled by a U.S. corporate tax rate 50 percent higher than the OECD average. Companies will flock to the best environment, and higher tax rates clearly put businesses that want to grow and invest here at a disadvantage.
The rest of the world understands the benefit of a lower corporate tax rate and is acting. Asian countries are aggressively cutting corporate taxes. Ireland, which holds the lowest OECD corporate tax rate, enjoyed employment growth of 3.8 percent last year and is one of the most attractive business locations in the world. We should not stand still as the rest of the world scrambles to embrace a philosophy that we taught them. If we want to grow our economy, create jobs, and take the lead in this global economy, we have to reduce our corporate tax rate.
I encourage my colleagues on both sides of the aisle, as well as in state legislatures, to look at what is happening around the world. We shouldn’t just be joining the race to lower taxes — we should be leaps and bounds ahead. After all, we’ve known for a very long time that the path to prosperity comes from reining in the size of government and letting people have more control over their money. It’s the American way, and it’s time to get back to those roots.
Ensign is a member of the Senate committees on Budget; Commerce, Science and Transportation; Finance; and Rules and Administration.