Business Tax Reform
U.S. business tax policy places domestic manufacturers at a disadvantage. Manufacturers in the U.S. are among the most highly taxed companies in the world. The U.S. corporate tax rate, a combination of federal and state taxes, is 38.9 percent. After-tax profits are then taxed again when received by shareholders as dividends or capital gains.
The U.S. now has the highest statutory tax rate among industrialized countries. The gap between the effective tax rate of the U.S. and those of its nine largest trading partners is between nine and 11 percent, clearly benefitting foreign producers with higher after-tax rates of return.
Manufacturing is the sector most exposed to foreign competition, and therefore is especially sensitive to comparative rates of corporate taxation. To own manufacturing plants in the U.S. is to be subject to the highest corporate tax rates in the world. This has serious negative implications both for the competitiveness of U.S. steel producers, and for the location of capital investments in plants and equipment. U.S. business tax policy deters rather than supports locating plants in the U.S. Other nations note this, and maneuver their business taxes to attract foreign investment.
Steel production is a highly capital-intensive process. As such, there are tax credits and deductions in place that are intended to promote manufacturing investment and the creation of jobs in the U.S. economy.
While SMA supports a lowering of the U.S. corporate tax rate to a more globally competitive level, a rate cut should not be financed through the elimination of corporate credits and deductions that are critical to the promotion of manufacturing investment and the creation of jobs in the U.S. economy. If not properly structured, a swapping of credits and deductions for a supposedly lower corporate rate could result in a net tax increase for capital-intensive industries, including steel manufacturing.
The U.S. government should reduce its corporate tax rate to be competitive with comparable tax rates in other countries. This would diminish exports of U.S. investment capital and stem job losses in the U.S. manufacturing sector. Such a step would create jobs for millions of Americans whose employment has been imperiled by inadequate U.S. tax and trade policies.