Tuesday, July 2, 2013
The Government Accountability Office yesterday released Corporate Income Tax: Effective Tax Rates Can Differ Significantly from the Statutory Rate (GAO-13-520):
Effective tax rates (ETR) differ from statutory tax rates in that they attempt to measure taxes paid as a proportion of economic income, while statutory rates indicate the amount of tax liability (before any credits) relative to taxable income, which is defined by tax law and reflects tax benefits and subsidies built into the law. Lacking access to detailed data from tax returns, most researchers have estimated ETRs based on data from financial statements. A common measure of tax liability used in past estimates has been the current tax expense--either federal only or worldwide (which comprises federal, foreign, and U.S. state and local income taxes). The most common measure of income for these estimates has been some variant of pretax net book income. GAO was able to compare book tax expenses to tax liabilities actually reported on corporate income tax returns.
For tax year 2010 (the most recent information available), profitable U.S. corporations that filed a Schedule M-3 paid U.S. federal income taxes amounting to about 13 percent of the pretax worldwide income that they reported in their financial statements (for those entities included in their tax returns). When foreign and state and local income taxes are included, the ETR for profitable filers increases to around 17 percent. The inclusion of unprofitable firms, which pay little if any tax, also raises the ETRs because the losses of unprofitable corporations greatly reduce the denominator of the measures. Even with the inclusion of unprofitable filers, which increased the average worldwide ETR to 22.7 percent, all of the ETRs were well below the top statutory tax rate of 35 percent. GAO could only estimate average ETRs with the data available and could not determine the variation in rates across corporations. The limited available data from Schedules M-3, along with prior GAO work relating to corporate taxpayers, suggest that ETRs are likely to vary considerably across corporations.
- Bloomberg, Profitable U.S. Companies Paid 12.6% Taxes in 2010: GAO
- CBS News, Feds: Big Companies Pay Low Tax Rate
- CNN, GAO: U.S. Corporations Pay Average Effective Tax Rate of 12.6%
- Forbes, GAO: Big Companies Paid a 12.6% Effective Federal Income Tax Rate
- The Hill, GAO: Corporations Pay One-Third of Statutory Rate
- Huffington Post, U.S. Companies Pay Just One-Third of the Legal Tax Rate: GAO Study
- New York Times, Big Companies Paid a Fraction of Corporate Tax Rate
- Reuters, For U.S. Corporate Giants, Taxes Are Far Below Top Rate: Study
- Tax Foundation, GAO Compares Apples to Oranges to Find Low Corporate Effective Tax Rate
- Wall Street Journal, Firms Paid 12.6% Tax Rate in 2010
- Wall Street Journal, Five Numbers Show How Much Corporations Really Pay in Taxes