Corporate Taxes, Theory vs Reality

http://jaredbernsteinblog.com/corporate-tax-reform-be-careful-what-you-wish-for/

Jared Bernstein
February 22nd, 2012

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Today, the U.S. corporate tax rate of 35 percent is one of the highest in the world, but an abundance of loopholes and deductions means that many companies pay far less than that — or nothing at all. Companies in the United States pay almost half the taxes than companies do in other rich countries, compared to the size of the economy, according to the Organization for Economic Cooperation and Development.

Last I checked, we were collecting around 1.3% of GDP in revenue from the corporate sector. That’s low both in our own historical terms (the average has been about 2% over the past few decades) and especially in international terms, despite the fact that we have a higher statutory rate. And it’s not just the recession depressing corp revenues, though that’s part of it, because corporate profitability is once again soaring.

This tells you two things. First, a lot of companies take advantage of the breaks in the code and second, getting to a revenue-neutral 28% will mean taking away a lot of those goodies.

Some of the biggies are accelerated depreciation, interest deductibility, the ability to pass corporate capital gains over to the individual side of the code (where it gets favorable treatment), and a bunch of international loopholes, like deferral—the ability to avoid US taxation by holding multinational profits overseas.

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