Just The Facts

Does the U.S. Really Have the World’s Highest Corporate Tax Rate?

Ending a favorite U.S. myth, in 10 facts.

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Takeaways


  • The US business lobby asserts that the US corporate tax rate is 35%, higher than the OECD average.
  • The effective US corporate tax rate (after deductions, credits and loopholes are counted) is ~26%.
  • The problem in the US isn’t over-taxing corporations; it’s that some are unfairly taxed or exempted.
  • Some sectors pay as low as 14% effective US corp. tax rate, while others pay as much as 31%.

1. The U.S. business lobby never misses an opportunity to point out that the 35% corporate tax rate is the highest in the industrialized world. (With state taxes, it’s about 39%.)

2. This is said to compare unfavorably to the statutory rate averages of around 30% for most industrialized countries (the OECD’s 2012 GDP-weighted average was 32%).

3. However, what corporations are really concerned about is not the statutory rate, but the effective tax rate.

4. That rate covers the percent of profits paid in taxes once all the deductions, credits and other complex provisions of the tax code are taken into account.

5. The U.S. business lobby is usually completely mum about this rate, effectively misleading the American and global public.

6. In terms of the effective corporate tax rate, the United States is actually below the average of the big industrial countries, at about 26%.

7. As a result, the oft-heard claim that the U.S. corporate tax rate is crippling the competitiveness of American business is, at best, “vastly overstated.”

8. The real issue in the United States isn’t the level of taxation, but the huge variation in effective tax rates paid by different companies in different industries.

9. That is an entirely homemade problem – and the consequence of all the shady lobbying that happens in Washington, D.C. day in and day out.

10. The U.S. Treasury estimates that U.S. retailers and wholesalers, for example, pay an average effective federal tax rate of 31%, while U.S. utilities pay an average of 14%. Other industries fall somewhere in between.

From Marty Sullivan figured out how the world’s biggest companies avoided billions in taxes by Steven Pearlstein (Washington Post) and from TaxFoundation.org.

 

 

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