The US politicians have been talking about Corporate Tax Reform for a long time, and it is not going anywhere. I doubt anything will get passed in the next four years during President Obama’s second term. US has the second highest corporate tax rate of 35% in the world, it is not competitive at all. Many people don’t realize the corporate taxes in the US raise only 10% of the total federal tax revenue. To restore US economic growth, the government needs to lower the corporate tax rate and provide more incentives for investments.
Fred Smith, FedEx chairman & CEO, discusses jobs creation and the importance for companies to remain innovative. Reforming the "dysfunctional" U.S. corporate tax system should be the top priority in the federal government's efforts to restore economic growth, FedEx Chairman and CEO Frederick Smith told CNBC this week.
"If you look historically, what creates growth and wealth is innovation and investment, and increase in scale — more customers," he said in a "Squawk Box" interview. "The United States tax system today is very prejudiced towards financialization, leverage, and lack of investment."
On Wednesday, the government reported that the nation's Gross Domestic Product (CNBC Explains GDP) dropped 0.1 percent in the fourth quarter — the first negative-growth reading in more than three years.
A day after the GDP release, Smith said, "What needs to be done to restore growth is very straightforward. And that's change the U.S. corporate tax system. It's very dysfunctional and it … [holds back] investment. And investment, in turn, is what creates GDP growth and jobs." The U.S. economy will growth at a rate of about two percent this year, he predicted. "[But] that simply won't re-employ ... millions of Americans."
"We need to … lower the corporate tax rate, take out all of the special deals and deductions and so forth, and provide an incentive for investment," added Smith, who is part of the Business Roundtable (BRT), a CEO lobbying group.
The BRT invited President Barack Obama to address its members in December. "The president came to the Business Roundtable not long ago," Smith recalled, "[and] stated unequivocally that he's for corporate tax reform, including a lower rate and a modified territorial system."
Republicans have long-sought to change the corporate tax code. "It's the politics that keeps it from getting done," said Smith, who was a supporter of Mitt Romney in the 2012 presidential election. The issue of overhauling corporate taxes had emerged as a possible negotiating point in the talks at the end of last year to avoid the "fiscal cliff."
But it never became part of the final deal, which included higher taxes on wealthier Americans and an agreement to postpone automatic spending cuts, known as "the sequester," until March. With about a month left, the president and Republican leaders are still far apart on a compromise plan to replace those across-the-board spending cuts.
But during this past week, the complicating factor of raising the debt ceiling — a move Republicans had refused to support without matching spending cuts — was taken off the table until May.
Recognizing that waiting and worrying about Washington is not a business plan, Smith said, "I think companies have decided to move on. FedEx is investing this year, in our fiscal year that ends May 31, about $3.9 billion."
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