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Are corporate taxes hurting job growth?

In Japan the government is getting closer to cutting the corporate tax rate to spur economic growth. If the Japanese cut their 40 percent rate the U.S. will have the highest corporate tax rate in the industrialized world — 39 percent.

TEXT OF INTERVIEW

JEREMY HOBSON: Now to the tax cuts. The big compromise package that passed the Senate yesterday is expected to get a vote in the House today. Meanwhile in Japan the government is getting closer to cutting the corporate tax rate to spur economic growth. If the Japanese cut their 40 percent rate the U.S. will have the highest corporate tax rate in the industrialized world — 39 percent.

Let’s bring in Diane Swonk, chief economist at Mesirow Financial. She’s with us live from Chicago. Good morning Diane.

DIANE SWONK: Good morning.

HOBSON: Is having the highest corporate tax rate in the world something we should be worried about?

SWONK: It is and it isn’t in the sense that many corporations don’t pay any taxes at all. In fact there’s so many loopholes in our corporate tax code that the actual rate is not really reflective of what corporations are paying. Many corporations are actually paying in their taxes. And even the new tax cuts today that are going to be voted on on the extension of the Bush era tax cuts include expansions of corporate deductions for investment in things like capital equipment, new technologies, RND, which will lower their tax burden in 2011.

HOBSON: So that 39 percent tax rate doesn’t tell the whole story. But yesterday President Obama met with those CEOs. He asked them to do some hiring. If we do indeed end up having the highest corporate tax rate in the world, at least on paper, does that cause a problem in terms of companies being able to create jobs?

SWONK: It does in the sense that much of our corporate profits are being horded and paid abroad. They’re being moved abroad instead of being paid here in teh United States. Not only is that a loss in revenues for the U.S. government, which could use the revenues, if tax rates were lower, corporations wouldn’t spend so much time trying to move their businesses to other places and book their profits in other countries. And so anything to bring that money back and store demand in the U.S. would be a plus for job growth here. So there is definitely an argument for simplifying the tax code and lowering the tax rate. That means eliminating some of those loop holes for corporations who don’t pay taxes but also lowering the tax rate to be more competitive internationally.

HOBSON: Diane Swonk, chief economist at Mesirow Financial.

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