Wednesday, September 7, 2011
Tax Foundation, Beyond the Headlines: What Do Corporations Pay in Income Tax?
A number of recent news stories and think tank reports have drawn attention to the amount of income taxes paid by large corporations. ... To many Americans, such reports are an indication that the tax code is riddled with preferences that allow large corporations to avoid “paying their fair share” of taxes. To be sure, the corporate tax code – like the individual tax code – is complicated by too many credits and deductions that benefit a narrow set of taxpayers at the expense of the many. But as if often the case in tax discussions, anecdotes do not tell the whole story.
A review of actual IRS corporate tax return data shows that while the largest corporations in America (those with assets larger than $2.5 billion) represent a tiny fraction of all corporations, they pay an overwhelming share of all federal corporate income taxes. And while the more sensational reports focus on the low effective tax rates paid by a few companies – at least according to their financial statements – the IRS data shows that the effective U.S. tax rate for all corporations averaged 26% between 1994 and 2008.
The effective U.S. tax rate varies across years, ranging from 27.5% in 1999 to 22.8% in 2008. It also depends on industry and company size, with small, domestically based corporations paying close to the statutory rate of 35% and large, multinational corporations (MNCs) paying a lower effective U.S. rate. However, when foreign taxes are included, the overall tax rate on large MNCs is also close to the U.S. statutory rate of 35%. Averaged for all corporations in 2007, the overall effective corporate tax rate was between 32.1 and 33%.