U.S. Corporate Tax Rate Is 2nd Highest in Industrialized World

http://taxprof.typepad.com/taxprof_blog/2009/08/us-corporate-tax-rate.html

by cwan • 17 years ago

7 30 17 years ago

taxprof.typepad.com

eli5• 17 years ago

OK, but there aren't many (any?) corporations that actually pay that rate. The effective tax rate for US corporate income -- what companies actually pay -- is about 25%.

The "35% corporate tax rate" is a disingenuous business-lobby talking point. Actual effective US corporate taxes are lower than those in many industrialized European countries.

cwan4• 17 years ago

This would be true in a lot (if not most) of the OECD/industrialized countries that the amount paid and effective marginal tax rates are significantly higher. But either way, it's discouraging for those who seek to create businesses in the US. The quasi-good news may be that a lot of other countries are in worse financial shape and may increase their marginal tax rates in coming years but with the recent large and projected deficits in the US I suspect US marginal tax rates could rise significantly as well.

eli5• 17 years ago

I see your point, but I have a hard time believing there are many people (certainly not here on HN) who are thinking, I'd really like to start a company, but the taxes are just too high.

Personally, I'd be a lot more worried about getting health insurance for myself and any other employees of my startup than paying the income tax.

CWuestefeld5• 17 years ago

The quasi-good news may be that a lot of other countries ... may increase their marginal tax rates

I'm not seeing anything good in that.

The statement seems to make the common assumption that economics is a zero-sum game, that somehow the harm that other nations suffer makes us better off. But this is absolutely not true.

When anyone is better off, it improves the lot of all, at least marginally. For example, a rich USA is able to provide aid to much of the rest of the world; our ailing economy might make some people smile as they think that the richies are losing out, but that just impedes our ability to aid. Even indirectly, riches provide the opportunity to research better agricultural practices, better healthcare, etc., and those things wind up benefitting all. Any country that's richer can afford to be more environmentally conscious, and that's a boon to all earthlings.

So I'm not able to take any pleasure in the idea that other nations might abuse their wealth-makers as badly as we do our own.

tjic• 17 years ago

"business-lobby" ?

Does that mean "people in favor of profits, job creation, and value creation" ?

Count me in to that lobby.

Because, frankly, what's the alternative? Thinking that we have too much entrepreneurialism, value creation, innovation, and employment, and we should tax it more so that we end up with less of it?

iron_ball• 17 years ago

If other countries have lower taxes, why don't they have more entrepreneurialism, value creation, innovation, and employment than America?

skorgu4• 17 years ago

That's a nice straw man you're arguing against.

Lobbying for less regulation, lower taxes and free markets is one position. Lobbying for increased oversight of potentially damaging behavior, increased transparency in industry, reduced rent seeking and universal standards of safety is another. The right mix is somewhere in between the two extremes of course and each side can point to massive failures of the other's philosophy.

Implicitly framing one side as "people who don't like profits or jobs" is distasteful and frankly surprising to see here.

biohacker42• 17 years ago

Because, frankly, what's the alternative?

Lobbying to preserve your government made monopoly, to keep in place subsidies, to restrict competition, etc. It ain't all flowers and sunshine and free markets.

It doesn't matter if it's big labor or big business or big government, they are all bad.

eli5• 17 years ago

My point is just that the "35%" figure is extremely disingenuous.

Your position is perfectly valid, but lets have a debate where the facts lead to a conclusion, not the other way around.

byrneseyeview• 17 years ago

Do other countries' companies pay something closer to the official tax rate?

It's also a good idea to keep in mind that Europe can be a little more corporatist than the US. e.g. a German auto company might pay extra taxes in order to give their future engineers subsidized education, or to ensure that unemployment benefits are high enough that when they fire people, they can hire them back a year or two later. American companies often have much more diffused benefits.

eli5• 17 years ago

It's all over the map. Media Matters has a chart based on World Bank data: http://mediamatters.org/research/200902030003

DanielBMarkham2• 17 years ago

This meme is one that deserves a quick death.

First, how can you talk about tax rates without, er, talking about tax rates? In other words, if your only option is to say "well when I mean tax rates, I mean this other thing that's more statistically significant than what you mean" then that's really redefining terms, isn't it?

And assuming redefining terms is fine (I have no problem with it unless it's simply an excuse to shut down debate), effective tax rate is a statistical artifact, not the law. That means it's an average of all taxes paid -- both by huge megacorporations who have teams of lawyers and can locate partially overseas and by mom and pop internet startups who can't. And who do you think pays what, anyway? Once you get into statistics, methodology matters. If I remember correctly, the effective rate an average computed by total tax dollars, not a mean. That means that one Tycho who pays almost no US Taxes is going to offset about a million entrepreneurs who are having to pony up the full 35% rate.

High corporate rates, just like high income tax rates, will not hurt those already rich or making lots of money. The people it hurts are the folks trying to transition, trying to grow. The ones where five or ten percent make a huge difference.

The frustrating part about this effective tax rate discussion is that it presents a problem from which no further discussion is possible. I.e., suppose the real tax rate is 50% and the effective tax rate is 20%. Does that mean you should increase taxes by another 10%? Would that make the effective rate 30%? Of course not -- that's mushy thinking. But yet what are you supposed to do with this effective rate data? It seems to exist for no other purpose than to end debate on the effects of tax rates on corporations.

eli5• 17 years ago

OK, we can debate different ways of averaging and whatnot, but the effective tax rate is the the thing we're debating. I think most people would agree that it is more relevant how much you actually paid in taxes last year than in how much you could have paid had it not been for various deductions and credits.

And, surely you're aware that the "35% corporate tax rate" number is a bit of a statistical creation as well? We have a progressive tax code in the US, so small businesses that make less money are taxed at a lower rate. In no way is it accurate to argue that entrepreneurs making under $100k pay 35% federal income tax -- even if we ignore deductions, credits, and everything else.

Indeed, according to the Small Business Administration, sole proprietorships -- i.e. the mom & pops -- faced the lowest effective tax rate of any group last year: 13.3%. I'm not a statistician, but I don't think it's just the Tycos of the world skewing the stats.

locopati2• 17 years ago

And now, some alternative perspectives...

'Most Corporations Don't Pay Income Taxes' http://www.truthout.org/article/most-corporations-dont-pay-i...

'Big business must pay it's fair share' http://www.cleveland.com/opinion/index.ssf/2009/07/big_busin...

You can slice the numbers and both your point and my point turn out to be true. The questions become: what kind of society do we want? how can we build that society? and who will pay for it? It doesn't seem unreasonable to ask corporations who benefit from the infrastructure of the nation (including transportation, educational systems, public libraries, medical systems) to help pay for those benefits.

cwan4• 17 years ago

I've often wondered about this line of reasoning - that corporations "benefit" from a given nation and its infrastructure but the problem is that it's a two way street. The others use incentives put in place by government encouraging them to do things like research or investments. Local economies, consumers and nations themselves benefit greatly from corporations - both in the obvious point of jobs but even more so in the products and services they provide.

The report you cite at truthout also fairly points out that 80% of those companies paid no taxes because they didn't make any money. This doesn't take away from your point though that we have to ask what kind of society we want, but we also should be asking what's fair and also how services are provided.

locopati2• 17 years ago

The trick with 'no profit' is that it's possible for a company to tweak the numbers such that the books show 'no profit' while great profit was made and distributed in ways to allow that (some legal, some illegal, some gray area depending on interpretation). Big companies can take advantage of these rules much more easily than small ones due to a greater ability to allocate resources a legal dept that can explore these options.

CWuestefeld5• 17 years ago

I'm troubled by the suggestion that we can make a conscious decision about what kind of society we want.

First, pragmatically: the work of Friedrich Hayek shows that it's quite impossible for any top-down control mechanism to manage this stuff properly.

Second, philosophically: given the foundation that America is supposed to build on, I don't see how any group of people has the right to actively force a structure of society onto the others.

skorgu4• 17 years ago

Surely we build societies at least as much by our collective individual behavior as by centralized control? "Be the change you want to see in the world."

ivanyv• 17 years ago

I'm surprised it's higher than in Mexico. I thought our government liked to screw the corporations big time... Or maybe that's one of the reasons the country remains an underdog?

U.S. Corporate Tax Rate Is 2nd Highest in Industrialized World

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