Paul L. Caron

Tuesday, September 13, 2011

Tax Foundation: U.S. Effective Corporate Tax Rate Is Among Highest in World

Tax Foundation Logo Tax Foundation, U.S. Corporations Suffer High Effective Tax Rates by International Standards:

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.

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The Tax Foundation report gives short shrift to the CRS report that found that:

U.S. statutory corporate tax rates are about 10 percentage points higher than a weighted average of the OECD or the large countries that account for most of output (7 percentage points when including the production activities deduction). Effective tax rates are about the same, and marginal effective tax rates are only slightly larger in the United States.

That report may be found here:

Posted by: Stuart Levine | Sep 15, 2011 10:12:35 PM

You notice they quit ordering their list of countries by effective tax rates. Their criteria was so convoluted to make the United States come out on top, they had Germany down in tax haven status.

Posted by: jim harper | Sep 13, 2011 4:35:33 PM

I’ll start taking the tax foundation seriously when they start excluding from their corporate tax burden “comparisons” countries such as Venezuela, Lebanon, Lichtenstein and the the Cayman Islands (that are relevant to “competitiveness” to the same extent that Dijon-mustard is relevant to space-exploration), and start including in their comparisons U.S. domiciled LLCs (that pay zero corporate taxes in the U.S., but are subject to local corporate taxes in most other countries) in the calculation of the U.S. burden.

Posted by: One Guy | Sep 13, 2011 12:38:42 PM