Japan’s Rate Drop Puts U.S. at Top of Corporate Tax Rankings

U.S. corporations are pointing to the country’s new status as the major economy with the highest statutory corporate tax rate as a reason for overhauling the tax code and cutting the rate.

Japan reduced its rate, effective this month, putting that country’s statutory tax rate at 38.01 percent, according to the Tax Foundation, a Washington group that favors a broader tax base and lower rates. The U.S. rate, including state and local income taxes, is 39.2 percent.

“In terms of forcing the idea of lowering the corporate tax rate as a vital part of U.S. economic strategy, we’re encouraged,” said James Pinkerton, co-chairman of a coalition of companies that support lower rates, including CVS Caremark Corp. (CVS) and Raytheon Co. (RTN)

Because of various tax breaks, the effective tax rate for many U.S. companies is far below 35 percent, and many of the breaks remain popular with companies and politicians.

U.S. lawmakers have been debating a corporate tax rate cut. Last week, House Republicans adopted a budget that called for dropping the federal rate to 25 percent from 35 percent. They haven’t specified how they would broaden the tax base.

President Barack Obama, in a corporate tax framework released in February, called for a 28 percent top rate and a 25 percent rate for manufacturers. The administration suggested getting rid of many tax breaks and changing the tax treatment of corporate interest expenses.

“We’re fully aware that there are tradeoffs involved in this,” Pinkerton said. “Awareness is not the same as enactment.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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CVS Caremark Corp.

David Paul Morris/Bloomberg

CVS Caremark Corp. belongs to a coalition of companies that support lowering the corporate tax rate.

CVS Caremark Corp. belongs to a coalition of companies that support lowering the corporate tax rate. Photographer: David Paul Morris/Bloomberg