U.K. Road to Competitiveness Is Paved With Tax Increases

It has been the stated policy of the United Kingdom's Conservative-led coalition government "to create the most competitive corporate tax regime in the G20." Chancellor of the Exchequer George Osborne reiterated this policy -- expanded to include all noncorporate business -- in his 2012 budget speech delivered on March 21.

The flagship provisions of the policy are a large reduction in the corporate tax rate, exemption of most foreign profits from tax, and the introduction of a patent box. But these high-profile tax cuts have been accompanied by offsetting tax increases on business and -- by far the most significant tax change since the new government came to power -- an increase in the VAT rate. How the Conservatives have implemented tax reform has important lessons for U.S. policymakers who are considering the same path.

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The main lesson for U.S. businesses and their supporters in Congress is that if they want a tax system with more competitive features, they must raise somebody else's taxes -- or perhaps face offsetting tax increases on themselves. Otherwise, all their efforts may not amount to much more than talk. Without some break in the logjam of offsetting revenue increases, they may have to resign themselves to the status quo. And no doubt for some of them -- once they get a glimpse at the reality of a detailed proposal -- that will be just fine.

View TaxAnalysts'® Martin Sullivan's opinion in its entirety on TAX.com.

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