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Saturday, March 12, 2011

Tax Foundation: On April 1, U.S. Is #1 (World's Highest Corporate Tax Rate)

Tax Foundation logo The Tax Foundation has released Countdown to #1: 2011 Marks 20th Year That U.S. Corporate Tax Rate Is Higher than OECD Average:

There is increasing recognition in Washington that the U.S. corporate tax rate is out of step with the lower tax rates of most industrialized and emerging nations. Indeed, 2011 marks the 20th year in which the U.S. statutory tax rate has been above the simple average of non-U.S. countries in the Organization for Economic Cooperation and Development (OECD).

It is now well known that with a combined federal and state corporate tax rate of 39.2%, the U.S. has the second-highest overall rate among OECD nations. Only Japan, with a combined rate of 39.5%, levies a higher rate.

As Figure 1 indicates, the simple average of non-U.S. OECD nations has fallen from 38% in 1992 (the first year in which it fell below the U.S. rate) to 25.5% today. Similarly, the weighted average—which accounts for country size—has fallen from 42.5% in 1992 to 30.1% today. The weighted average rate of non-U.S. countries fell below the U.S. rate in 1998. Thus, 2011 marks the twelfth straight year in which the U.S. has been above the weighted average rate.

These figures and rankings do not reflect the changes that have occurred this year or will take place later in the year. On January 1, 2011, Canada's national corporate tax rate was reduced from 18% to 16.5%, which gives the country an overall rate of 28%. On April 1, both Japan and the United Kingdom are scheduled to lower their rates as well. Japan is planning to reduce its national rate by 4.5 percentage points, which will bring its overall rate to below 35%. The U.K. rate will fall from 28% to 27% as a first step of a multi-year plan to lower the British rate to 24% by 2014.

After the scheduled rate cuts in Japan and Great Britain take effect, the simple average of non-U.S. OECD nations will drop to about 25% percent and the weighted average will hit 29%. This will leave the U.S. rate a full 10 percentage points higher than the weighted average of our major economic competitors.

Table 1: Corporate Tax Rates in OECD Countries

Country

2010 Rate

2010 Rank

2000 Rate

2000 Rank

Rate Change

Rank Change

Japan

39.54

1

40.87

3

-1.3

2

United States

39.2

2

39.3

6

-0.1

4

France

34.43

3

37.76

7

-3.3

4

Belgium

33.99

4

40.2

4

-6.2

0

Germany

30.2

5

52.0

1

-21.9

-4

Mexico

30

7

35

11

-5.0

4

Spain

30

9

35

13

-5.0

4

Australia

30

6

34

14

-4.0

8

New Zealand

30

8

33

16

-3.0

8

Canada

29.52

10

42.57

2

-13.1

-8

Luxembourg

28.59

11

37.45

8

-8.9

-3

United Kingdom

28

13

30

23

-2.0

10

Norway

28

12

28

26

0.0

14

Italy

27.5

14

37

9

-9.5

-5

Portugal

26.5

15

35.2

10

-8.7

-5

Sweden   

26.3

16

28

27

-1.7

11

Finland

26

17

29

24

-3.0

7

Netherlands

25.5

18

35

12

-9.5

-6

Austria

25

19

34

15

-9.0

-4

Denmark

25

20

32

18

-7.0

-2

Korea

24.2

21

30.8

20

-6.6

-1

Greece

24

22

40

5

-16.0

-17

Switzerland

21.17

23

24.93

28

-3.8

5

Turkey

20

24

33

17

-13.0

-7

Czech Republic

19

25

31

19

-12.0

-6

Poland

19

27

30

22

-11.0

-5

Slovak Republic

19

28

29

25

-10.0

-3

Hungary

19

26

18

30

1.0

4

Chile

17

29

15

31

2.0

2

Iceland

15

30

30

21

-15.0

-9

Ireland

12.5

31

24

29

-11.5

-2

http://taxprof.typepad.com/taxprof_blog/2011/03/tax-foundation-us.html

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Comments

Ah, a tax exempt organization saying that the tax rate is too high. Only in America.

Posted by: yahoo | Mar 12, 2011 9:36:04 AM

Once again the idiocy of looking at stautory rates.

Posted by: Sid (real one) | Mar 12, 2011 4:28:57 PM

Rate may be high. How much are U.S. corporations actually paying? Oh. Nothing, eh? Well, heck, let's be honest and set the rate at 0%, and then we won't be pretending anymore.

Posted by: Jeffrey Killeen | Mar 13, 2011 11:02:20 AM

Corporations do not actually pay taxes. They may collect taxes and pass them on. But corporations do not actually pay taxes. Investors, employees, customers, and suppliers feel the impact, however. The only beneficiary of income taxes on corporations are accountants and lawyers. Oh congresscriters, also.

Posted by: EconRob | Mar 13, 2011 7:44:19 PM

"...let's be honest and set the rate at 0%, and then we won't be pretending anymore."

You think you're being sarcastic. But between the fact that nonprofit and Type S corporations pay no taxes by design, and the fact that Type C corps consider taxes to be a cost of doing business to be passed on to their customers, there's truth in jest. And yes, I know about the Price Elasticity counterargument. I don't buy it.

Posted by: John Stephens | Mar 13, 2011 7:44:23 PM

How do we rank for tax credits?

Posted by: Will | Mar 13, 2011 7:54:48 PM

@Jeffrey, Let's be honest, corporations don't pay taxes you the consumer do as they are added to the cost of the product or service being provided.

Posted by: Mike | Mar 13, 2011 7:57:48 PM

I don't get yahoo's comment. If they're tax exempt, then they don't have a stake in the outcome affecting their judgment. It's those who pay no taxes and want others to pay higher taxes that you have to look out for.

Posted by: Neil | Mar 13, 2011 8:03:41 PM

Let's not forget that most of these countries also have territorial tax systems. Not only does the current system lead to US companies performing all sorts of legal gymnastics to lower their effective tax rates but it provides a huge disincentive to bringing their overseas earnings home lest they get hit with a huge US tax bill.

Posted by: Red | Mar 13, 2011 8:09:18 PM

What a brilliant collection of comments. You've convinced me that corporate taxes don't really exist, because they merely pass all such costs into their customers and suffer little or no loss. Even though taxes are calculated in part through profit, big companies just take that 40% and tack it onto their prices for the next year (to make up the difference you see) which leads to even GREATER profits (from the higher prices), resulting in more taxes, and another round of hiked prices, ad infinitum. I guess they can do this because all corporate-dominated industries are oligopolies and the poor, poor consumer just gets screwed harder and harder.

When companies exit states like Illinois and New Jersey for states like Texas and South Carolina, it's because they like the weather better. When they engage in long term tax and business planning, it's clearly just for show.

Stupid.

Posted by: df82 | Mar 13, 2011 8:22:06 PM

"corporations don't pay taxes you the consumer do as they are added to the cost of the product or service being provided."

This is just not true. The impact of taxes is far worse than just "adding" the taxes to the price of goods sold. It has a dampening impact on the economy. People only look at half of Keynes. One tenant - the one that is likely true - is that to slow down an overheated economy the government can raise taxes. Libs believe that but not the corollary.

Posted by: EconRon | Mar 14, 2011 5:37:50 AM

RED is correct. The rest of you, nice try.

Posted by: EBW | Mar 14, 2011 9:12:41 AM

""...let's be honest and set the rate at 0%, and then we won't be pretending anymore."
You think you're being sarcastic. But between the fact that nonprofit and Type S corporations pay no taxes by design, and the fact that Type C corps consider taxes to be a cost of doing business to be passed on to their customers, there's truth in jest. And yes, I know about the Price Elasticity counterargument. I don't buy it.
Posted by: John Stephens | Mar 13, 2011 10:44:23 PM"

Friend as an owner of an S Corporation trust me I do pay taxes on the business income. Pocket A or pocket B is besides the point. The taxes get paid. As for C corporations, they pass their tax payments on to the shareholders. Why do people persist in the theory of of corporations not paying taxes but rather passing it on to the customers? First whatever taxable income there is is paid by the shareholders and second it isn't always possible to pass 100% of all costs to the customers, they do have choices of where to buy.

Speaking of non profits, why are they even allowed to exist?

Posted by: cubanbob | Mar 14, 2011 9:22:14 AM

You just have to love the Tax Foundation's selective use of OECD data. How about the fact that we (US) are fourth from the bottom in aggregate tax burden (federal, state and local combined) with only Turkey, Mexico and Chile coming in behind us? And as you contemplete the joys of living in any of those countries with their web of generous social servies, also consider having their militaries providing for your security.

Posted by: Bill | Mar 14, 2011 9:43:36 AM

Who won the cold war again?

Posted by: Eagle | Mar 14, 2011 12:48:39 PM

If corporate tax rates in the US are irrelevant, and loopholes ensure that corporations pay much less, then why aren't the same lefto-socialists demanding that the US raise corporate tax rates?

Raise rates. As the OECD rates go down, the US should go in the opposite direction. That'll show'em.

Come on, I dare ya. I double dare ya. Raise the US corporate tax rate to 50%. Let's see the Homocrats sweep the 2012 elections then.

Posted by: Eagle | Mar 14, 2011 12:58:04 PM

I eagerly anticipate a world where nations have to compete on tax friendliness..

The US, former champion of capitalism, is now the world's largest obstacle to capitalism.

But the widening delta between the US and OECD average will hasten the need for the US to become competitive. And not a moment too soon.

Posted by: Eagle | Mar 14, 2011 1:01:41 PM

I would add that ALL the countries in this list have either stayed the same or (mostly) dropped.

It is not that the US ever raised rates, but rather that they failed to keep up with the pack.

Sort of like the US auto industry being outcompeted.

What happens to GM happens to America.

Posted by: Eagle | Mar 14, 2011 4:27:00 PM