TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, October 28, 2008

CP&PP: U.S. Corporate Tax Burden, Not Rate, Is Key Metric

The Center on Budget & Policy Priorities has published Putting U.S. Corporate Taxes in Perspective, by Chye-Ching Huang:

The U.S. corporate tax burden is smaller than average for developed countries. Corporations in the 19 member states of the OECD paid 16.1% of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4%.

Nevertheless, some have argued that U.S. corporate tax rates unduly burden U.S. companies by pointing to the country’s top statutory tax rate, which is 35%. For example, a recent Wall Street Journal editorial calling for corporate tax cuts noted that this is the second highest top statutory tax rate among developed countries. While true, this gives the false impression that the corporate tax burden is greater here than in other developed countries. Because the U.S. tax code offers so many deductions, credits, and other mechanisms by which corporations can reduce their taxes, the actual percentage of profits that U.S. corporations pay in taxes — or what analysts refer to as their effective tax rate — is not high, compared to other developed countries.

Because the average U.S. corporate tax burden is low, many economists believe a revenue-neutral corporate tax reform that reduces statutory corporate tax rates, while broadening the tax base by eliminating costly tax breaks, could improve economic efficiency and likely benefit the U.S. economy.

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Investment decisions are made at the margin and not at the average burden. The US marginal rate is one of the highest in the developed countries.

Posted by: DLN | Oct 28, 2008 5:54:40 AM

Let's not forget the US payroll taxes...matching Social Security contributions and Medicare. Also just about every jurisdiction one does business in charges a business license fee and most charge an income tax that is not included in this calculation. Every state charges franchise taxes to do business in their state if you have sufficient nexus. Pretty much all raw materials a company buys has some hidden governmental tax that drives up it's cost - look at the Federal fuel excise drives up the cost of everything. Limited drilling in the Continental US the past 30 yrs is a hidden tax imposed by the Federal govt.

Posted by: Stevo | Oct 28, 2008 9:33:32 AM