Tuesday, October 28, 2008
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.