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Wednesday, May 4, 2011

NY Times: U.S. Corporate Taxes -- Rates, Loopholes, Public Opinion

New York Times, U.S. Business Has High Tax Rates but Pays Less:

The United States may soon wind up with a distinction that makes business leaders cringe — the highest corporate tax rate in the world.

Topping out at 35%, America’s official corporate income tax rate trails that of only Japan, at 39.5%, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China. To help companies here stay competitive, many executives say, Congress should lower it.

But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.

The paradox of the United States tax code — high rates with a bounty of subsidies, shelters and special breaks — has made American multinationals “world leaders in tax avoidance,” according to Edward D. Kleinbard, a professor at the University of Southern California who was head of the Congressional joint committee on taxes. This has profound implications for businesses, the economy and the federal budget.

As Congress wrestles with how to get the deficit under control, one big point of contention is whether spending cuts will need to be accompanied by an increase in taxes on some individuals or businesses. Facing a full-court press from business leaders who say the tax system is outdated and onerous, President Obama, Congress and business leaders have been warily negotiating various proposals, though mostly about whether to cut the top corporate rate and to tighten tax laws and not about whether to increase revenue.

The United States is virtually alone in trying to tax its multinational corporations on their foreign earnings, but it allows companies to avoid those taxes indefinitely by keeping profits overseas. That encourages companies to use accounting maneuvers to shift profits to low-tax countries and to invest profits offshore, says David S. Miller, a partner at Cadwalader, Wickersham & Taft in New York.

Chart 1

New York Times, Americans Favor Budget Cuts Over Raising Corporate Tax:

While most Americans say corporations do not pay their fair share in taxes, they still prefer cuts in government spending to increasing taxes on corporations as a means of cutting the federal budget deficit, according to a recent New York Times/CBS News poll.

But when given a choice between raising taxes on corporations and raising taxes on households that make more than $250,000 a year, almost two-thirds of respondents opt for taxing businesses.

Chart 2 

 

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