QuestionQuestion

Over the past thirty years, corporate tax rates have declined on a global level. However, whilst some countries have reduced their corporate tax rates, some other countries’ tax rates remain relatively stable. Bigger and more industrialized countries usually charge higher corporate tax rates compared to developing countries. The United States (US) has one of the third highest corporate tax rates in the world (38.9 percent (federal tax rate of 35 percent and average state tax rate), which has remained relatively consistent over the past twenty years compared to the worldwide average corporate tax rate.

Question:
Select one country and critically evaluate how its changes in corporate tax rates compare/differ over the past twenty years to the corporate tax rates of the United States (US) for the same period. Your evaluation should include a critical discussion on how changes to corporate tax rates impact on other sources of tax revenue and how this may affect taxpayer behaviour.

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Introduction
Governments around the world have often used corporate tax cuts as a way of boosting economic growth or as a way of attracting investors. One of the countries that have implemented drastic changes in their combined corporate tax rates is Japan which saw its corporate tax rate reduce from about 50% 20 years ago to about 30% last year. In contrast, the United States has left its corporate tax rates largely unchanged in the last 20 years, and the country continues to have one of the highest corporate tax rates in the world. This paper presents a critical analysis of changes in Japan’s corporate tax rates in the last 20 years, and compares Japan’s corporate tax rate to the corporate tax rates of the United States for the same period. Additionally, the paper presents critical discussion on how changes to corporate tax rates impact on other sources of tax revenue and how this may affect taxpayer behaviour. In summary, there were significant changes in Japan’s corporate tax rates between 1996 and 2006, and these changes resulted in variations to the components of the country’s total tax revenues.
Analysis
The United States and Japan’s corporate tax rates over the last 20 years present a good sample for analysing whether or not changes in corporate tax rates impact tax revenue and tax payer behaviour. This is because the two countries’ tax rates have been significantly different with Japan’s rates being more than 10% above USA’s 20 years ago to now being almost 10% less. USA’s tax rates between 1996 and 2016 remained relatively steady with marginal declines of about 0.03 percent annually. In total, taxes declined slightly in 15 of the 20 years reviewed, but the total change for the entire period was just slightly above half a percentage point. The only years when corporate tax rates increased slightly were 2002, 2003, 2006, 2010, and 2014...
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