Actual U.S. Corporate Tax Rates Are in Line with Comparable Countries

http://www.cbpp.org/research/federal-tax/actual-us-corporate-tax-rates-are-in-line-with-comparable-countries

Center on Budget and Policy Priorities
April 25, 2017

Various GOP tax plans propose to dramatically lower the top corporate tax rate, arguing that the U.S. rate is one of the highest in the world and that it makes U.S. companies “uncompetitive.” But these comparisons are misleading. Rather than focusing on the top “statutory” corporate rate, they should focus on what companies actually pay. Plus, they should focus on large, high-income countries, which companies are likely to view as similar to the United States in terms of being attractive places to locate and invest for reasons not related to the tax system. When taking into account tax breaks and loopholes that corporations use to lower their taxes, U.S. corporate tax rates are well below the 35 percent top statutory rate and are in line with corporate tax rates in similar countries.

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Comparisons of corporate tax rates should focus on the measures that reflect what companies actually pay, not the top statutory rate. Proponents of slashing the corporate tax rate often note the U.S. statutory tax rate is the highest among developed countries. But many U.S. companies use an array of targeted tax breaks and loopholes to significantly lower the taxes they pay. These include tax subsidies for certain types of investments (such as in research and development) and for particular industries (such as oil and gas).

The Joint Committee on Taxation estimates that in 2016, while the corporate income tax raised $300 billion in revenues, targeted subsidies delivered to companies through the corporate tax code cost about $270 billion. As a result of these subsidies and other tax avoidance measures, many large U.S. companies pay very low rates. For example, Pfizer paid a rate of about 7.5 percent on its $12 billion in worldwide pre-tax income in 2014. Studies generally also find that U.S. companies’ tax rates vary widely by industry and type of investment.

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The erroneous international comparisons of corporate tax rates are often coupled with arguments that cutting the U.S. corporate tax rate would help create jobs and growth. In fact:

• The case for slashing corporate tax rates is thin: U.S. companies are posting near-record profits, and little suggests that corporate taxes — or poor corporate profitability — are a major constraint for the U.S. economy.
• Most of the benefit of corporate rate cuts flows to high-income investors rather than “trickling down” to workers in the form of higher wages, and the cuts are costly: Reducing the corporate tax rate to 15 percent, as President Trump has proposed, would cost more than $2 trillion over ten years. Such a tax cut could hurt the majority of Americans if it permanently increased deficits (which can slow economic growth in the long run, according to the Congressional Budget Office) or its high cost is paid for with large cuts to investments that help working families.
• Rather than slashing the corporate tax rate, true corporate tax reform that addressed inefficient corporate tax breaks, loopholes, and the tilt of the tax code towards debt and foreign profits would be more likely to foster growth. Such reform could help ensure that investments flow to where they are most productive. It could also raise revenues to reduce deficits and invest in national priorities like education and infrastructure that deliver long-term benefits for the economy and the majority of Americans.

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