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Sunday, January 16, 2011

Illinois Corporate Tax Hike Inches U.S. Closer to #1 Global Tax Ranking

Tax Foundation, Illinois Corporate Tax Hike Inches U.S. Closer to #1 Ranking Globally:

The recent move by Illinois lawmakers to increase the state's corporate tax rate from 7.3% to 9.5% is further evidence that no tax change is made in a vacuum. Not only did the rate hike move Illinois from having the 21st highest overall corporate tax rate among the 50 states to having the 3rd highest, it also raised the average corporate tax rate for the nation as a whole, thus inching the U.S. closer to Japan as having the highest corporate tax rate among the leading industrialized nations.

When state lawmakers think about how their state compares, they tend to think only about their standing relative to their direct neighbors or the other 49 states. However, they need to also recognize that they are competing in a global economy and that their state corporate taxes are being levied in addition to the federal corporate tax rate of 35%. Because the U.S. federal rate is the highest federally imposed corporate tax rate among the 31 nations comprising the Organization for Economic Cooperation and Development (OECD), most states are effectively imposing some of the highest corporate tax rates in the world.

                                Comparing U.S. State Corporate Taxes to the OECD (2011) 

OECD Rank

Country/State

Fed. Rate 2010

Top State/Provincial Corporate Tax Rate

Combined Fed. & State Rate

 

Pennsylvania

35

9.99

41.5

 

Minnesota

35

9.8

41.4

 

Illinois

35

9.5

41.2

 

Alaska

35

9.4

41.1

 

New Jersey

35

9.36

41.1

 

Rhode Island

35

9

40.9

 

Maine

35

8.93

40.8

 

California

35

8.84

40.7

 

Delaware

35

8.7

40.7

 

West Virginia

35

8.7

40.7

 

Massachusetts

35

8.5

40.5

 

Indiana

35

8.5

40.5

 

New Hampshire

35

8.5

40.5

 

Vermont

35

8.5

40.5

 

Maryland

35

8.25

40.4

 

Oregon

35

7.9

40.1

 

Wisconsin

35

7.9

40.1

 

Nebraska

35

7.81

40.1

 

Idaho

35

7.6

39.9

 

New Mexico

35

7.6

39.9

 

Connecticut

35

7.5

39.9

 

New York

35

7.1

39.6

 

Kansas

35

7.05

39.6

1 (2)

Japan (2010 Rates)

30

11.51

39.54

 

Arizona

35

6.97

39.5

 

North Carolina

35

6.9

39.5

 

Montana

35

6.75

39.4

2 (1)

United States

35

6.56

39.3

 

Alabama

35

6.5

39.2

 

Arkansas

35

6.5

39.2

 

Tennessee

35

6.5

39.2

 

Hawaii

35

6.4

39.2

 

North Dakota

35

6.4

39.2

 

Missouri

35

6.25

39.1

 

Georgia

35

6

38.9

 

Kentucky

35

6

38.9

 

Oklahoma

35

6

38.9

 

Virginia

35

6

38.9

 

Iowa

35

12

38.6

 

Florida

35

5.5

38.6

 

Mississippi

35

5

38.3

 

South Carolina

35

5

38.3

 

Utah

35

5

38.3

 

Michigan

35

4.95

38.2

 

Colorado

35

4.63

38.0

 

Louisiana

35

8

37.4

 

*Texas

35

0

35.0

 

*Washington

35

0

35.0

 

*Ohio

35

0

35.0

 

Nevada

35

0

35.0

 

South Dakota

35

0

35.0

 

Wyoming

35

0

35.0

2

Japan (2011 Rates)

30

11.51

34.54

3

France

34.43

  

34.4

4

Belgium

33.99

  

33.99

5

Germany

15.83

14.4

30.18

6

New Zealand

30

  

30

7

Spain

30

  

30

8

Australia

30

  

30

9

Mexico

30

  

30

10

Luxembourg

21.84

6.75

28.59

11

Canada

16.5

11.5

28

12

United Kingdom

28

  

28

13

Norway

28

  

28

14

Italy

27.5

  

27.5

15

Portugal

25

1.5

26.5

16

Sweden   

26.3

  

26.3

17

Finland

26

  

26

18

Netherlands

25.5

  

25.5

19

Austria

25

  

25

20

Denmark

25

  

25

21

Korea

22

2.2

24.2

22

Greece

24

  

24

23

Switzerland

8.50

14.47

21.17

24

Turkey

20

  

20

25

Czech Republic

19

  

19

26

Hungary

19

  

19

27

Poland

19

  

19

28

Slovak Republic

19

  

19

29

Chile

17

  

17

30

Iceland

15

  

15

31

Ireland

12.5

  

12.5

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Comments

This type of study needs to focus on Effective and not Statutory tax rates. For example, the provision in the 2010 Tax Legislation to allow one year expensing of cap ex reduced the effective corporate tax in the U. S. for 2011 (and raised it for future years if the provision is not extended) but did not affect the statutory rates. I do not know if the rankings would change, but effective rates are certainly more important and more relevant information.

Posted by: Sid | Jan 16, 2011 9:41:55 AM

The Tax rate of 35% is misleading. How many corporations actually pay the 35%.
Large depreciation expenses lower rates, so many corps don't pay for years
upon years.

Posted by: Jack Walsh | Jan 16, 2011 11:09:04 AM

Seems like the Tax Foundation is pushing an agenda rather than publishing relevant and valid research....

Posted by: jjohnson@jjohnstontaxlaw.com | Jan 16, 2011 11:54:56 AM

As a prior post indicated, comparing statutory rates rather than effective rates is sophomoric. Worse, it should be the province of inflammatory radio talk shows rather than a respected think tank.

The Tax Foundation should know better. Taxes as a percentage of GDP is the relevant and meaningful comparison. Compared to the other 33 OECD nations, the United States ranked FIFTH FROM THE BOTTOM with respect to corporate taxes as a percentage of GDP.

For a summary of the 2010 data, see http://ctj.org/ctjreports/2010/11/united_states_remains_one_of_the_least_taxed_industrial_countries.php.

Posted by: Dennis Ventry | Jan 16, 2011 3:34:37 PM

Just finishing a trip to Australia and New Zealand, where they have confiscatory VAT taxes called "GST" or "Goods and Service Tax". In NZ it is 15%, and I thing AU is 11%. Of course, most US states have sales taxes of about 6%, too. Still, the TOTAL tax liability must be considered....

Posted by: Dennis Xander | Jan 16, 2011 8:11:10 PM

While I agree that there are problems with the Tax Foundation's measure, Dennis, you should know better than to use corporate tax collections as a % of GDP because the U.S. has a tax code whereby a large fraction of business income is taxed in the individual tax code. Your comparison metric is no better than the Tax Foundation's.

Posted by: Milton | Jan 17, 2011 8:44:51 AM