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Pepperdine University School of Law

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Sunday, August 9, 2009

U.S. Corporate Tax Rate Is 2nd Highest in Industrialized World

The Tax Foundation has released U.S. Lags While Competitors Accelerate Corporate Income Tax Reform:

New data from the Organization for Economic Cooperation and Development (OECD) shows that the U.S. corporate tax rate has fallen even further out of step with the rest of the industrialized world as countries such as Canada, the Czech Republic, Korea, and Sweden have cut their corporate rates in 2009, lowering the average statutory corporate tax rate of all OECD nations to 26.5%.

With a combined federal and state corporate tax rate of 39.1%, the U.S. continues to impose the second-highest overall corporate rate among industrialized countries. Only Japan's 39.5% combined rate is higher. As the chart below indicates, the weighted average (accounting for country size) corporate rate of non-U.S. OECD nations is now below 30% for the first time in history. 2009 marks the 12th consecutive year in which the average corporate tax rate of non-U.S. OECD nations has been below the U.S. rate.

Corptaxrate_US_vs_OECD-20090803   

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Comments

Just like we have realized gains and recognized gains in the individual tax system, one is taxed and the other is not, we also have realized and recognized corporate tax rates. While I recognize that the maximum corporate tax rate for US Corporations is 39.1%, the second highest in the world, we must realize that the effective tax rate for US Corporations is something in the average 5% to 7% rate. Look it up. Somebody should write a paper on it,.... when they have completed the research project on Obama's birth certificate.

Posted by: Charles C. | Aug 9, 2009 8:40:59 PM

What a load of lobbyists' propaganda. I wonder how US corporations are doing in terms of effective average and effective marginal tax rates. No graphs here? Hmmm… interesting…
The US is doing just fine in the race to the bottom. We are well within the leading group. The only difference is that the other participants in the race are competing out in the open (reduction of statutory rates is clearly visible). We simply "cheat" our way through the race with "check the box" kind of rules.

Posted by: Anonymous | Aug 9, 2009 11:35:34 PM

This shows that the effective tax rate in 2006 was around 22 percent.

http://www.taxanalysts.com/www/features.nsf/Articles/9B96723BDBA236078525744B0060BAFA?OpenDocument

5-7% sounds like it's coming from the percentage of GDP coming from corporate taxes.

Everyone else seems to put the effective tax rate at between 25-35%.

From wiki, http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States

The max tax rates seem to kick in at an absurdly low level, you are hitting the max at 100,000 in income.

From mediamatters, they show the effective rate at around 27-28%

http://mediamatters.org/research/200902030003


Is that amount good for the country? Considering the tiny amount of gdp we are getting, when these businesses could be employing people and generating tax revenue from individual income taxes?

Posted by: Toll | Aug 10, 2009 11:01:32 AM

"Somebody should write a paper on it,.... when they have completed the research project on Obama's birth certificate."

Or just give Obama a little more time and you won't need a corporate rate. The government will own it all.

Posted by: willis | Aug 10, 2009 11:59:09 AM

Psst. Hey buddy, wanna cheap tax rate? Bring your business to Canada....

Posted by: Ed | Aug 10, 2009 12:17:34 PM

I wonder, Professor Caron, if your critics bothered to read this section.

"In stark contrast to these global trends toward lower corporate tax rates and "territorial" systems that
don't tax foreign profits, the Obama administration is proposing to raise more than $220 billion in new corporate taxes by making the U.S. world-wide tax system tougher. Currently, U.S. companies can defer paying U.S. tax on foreign-earned profits until those profits are returned home. Obama's plan seeks to expose more of those foreign profits to immediate U.S. tax regardless of whether the firm intends to return those profits to the U.S. or reinvest them abroad."

In short, these two Obama supporters are citing as "proof" that the tax is lower provisions that Obama is eliminating.

Perhaps they could try commenting intelligently on what the net effect of removing those will be -- and how a higher corporate tax will benefit the United States when the facts clearly show that higher corporate taxes create disincentive to invest in the United States.

Posted by: North Dallas Thirty | Aug 10, 2009 12:43:19 PM

Anonymous above is pathetically silly. Why do we have a ~40% tax rate (fining the successful $2 of every $5) then punch holes in that rate? Is this a Congressional ploy for power or is it just stupidity?

Denying all traffic, then punching holes for permitted services, is a great way to design an Internet firewall (or any firewall, really). It is a lousy way to run a "free" economy.

Posted by: Peter Buxton | Aug 10, 2009 1:02:13 PM

IMHO Peter, its to protect large companies at the expense of small. Small companies cant afford a legion of accountants and lawyers to make sure they've used all the holes.

Posted by: seguin | Aug 10, 2009 2:19:13 PM

Why, Peter?
It is called tax competition, that's why!
In case you haven't heard, tax competition doesn't limit itself to the statutory reduction of corporate tax rates. It also involves the creation of arbitrage opportunities. The IRC is a masterpiece in this regard. And this form of competition is much more diplomatically tolerable when negotiating with your trading partners (precisely because it is not clearly visible).
I'm hardly an Obama supporter, but with respect to multinational corporations the IRC makes no sense in terms of revenue collection. It does make perfect sense in terms of tax competition, even with a 35% corporate tax rate.
Complaining about the "high" statutory rate is a joke. Specifically when it is to the discretion of the taxpayer whether the entity is indeed a corporation which is subject to this so-called "high" rate.

Posted by: Pathetically Silly Anonymous | Aug 10, 2009 3:03:40 PM

Substantially lowering the tax rate and getting rid of loopholes would likely increase tax revenues, create jobs, and lead to a healthier overall economy, one less susceptible to meltdowns like the one we just went through in the financial sector. We can't do that, though. Too many voters believe they are "bad" and must be punished via taxes, and too many politicians (correctly) see them as incredibly effective sources of re-election cash.

Posted by: FB | Aug 10, 2009 5:52:09 PM

It looks like few if any of the commenters have a clue about taxes other than some superficial partisan talking point. I am CPA with near 30 years experience. This notion that corporations don't pay taxes is a joke. There are no real tax shelters left worth talking about. I certainly don't call the double taxation of foreign source earnings as equitable. The Tax prof knows what he is talking about.

Posted by: Ralph F | Aug 10, 2009 6:04:47 PM

I've worked with the Japanese for over 25 years and it's important to understand that the corporate game is played very, very differently over there. Small businesses that would be incorporated over here are not over there, due to the tax advantages of avoiding government scrutiny. Many professionals over here incorporate; this is much less common in Japan. Also, the Japanese Tax enforcement arm has traditionally put most of its effort into hunting down mid-level corporate tax cheats, which means individuals who freelance are amazingly free to game the system, and do it with enthusiasm. This is assisted by the huge size of the Japanese cash economy.
And on top of all that, the level of corruption at the higher end is staggering, and the biggest outfits pay very little taxes at all.
My suspicion is that when all is accounted for, Japan has an effective corporate tax at least 5% to 10% lower than on paper.

Posted by: TVS | Aug 10, 2009 8:20:53 PM

What the U.S. does not have, the most of the OECD countries do, is a comprehensive Value Added Tax. Outside the retail sales sector, most U.S. big busineses pay no sales taxes or value added taxes in the U.S., but these businesses typically do pay significant VAT abroad.

When VAT is considered, the combined rate is not nearly so high. Also, while state income taxes are out there, one can refrain from doing business in states with state income taxes in many industries (e.g. manufacturing) and reduce the rate that applies.

Posted by: ohwilleke | Aug 13, 2009 12:35:11 PM