The U.S. currently lays claim to the second-highest statutory corporate income tax rate in the developed world. At 39.2%, the rate is only 0.35 percentage points behind OECD-leading Japan. Since 1997, 30 of the OECD’s 34 member nations have lowered their statutory rates in an effort to retain and attract investment while the U.S. has sat idle.
In the process, the average statutory corporate tax rate for OECD nations has dropped from 36.5% to the current 25.1%. While this shift has been noted by the Tax Foundation and others—including Presidents Obama and Clinton—as reason for a competitive rate reduction, skeptics accurately note that statutory rates do not reflect the effective rates that corporations actually experience.
So how do U.S. effective corporate tax rates differ from the very high statutory rate? More importantly, how do effective tax rates for U.S.-headquartered firms compare to the rates of their competitors across the globe? This report addresses these questions by synthesizing the latest academic literature regarding effective corporate tax rates. Recent years have produced a multitude of credible studies to facilitate this enquiry.
Taken as a whole, these studies indicate that the average effective tax rate for U.S. corporations—like the statutory rate—is one of the highest in the world. By every available measure, the U.S. imposes a very high tax burden on its corporate sector, in comparison to other nations, even after credits and deductions are considered. As the issue of corporate taxation is currently mired in a great deal of misinformation and confusion, this discussion should serve to illuminate the facts underlying the ongoing corporate tax reform debate.