U.S. Corporations Suffer High Effective Tax Rates by International Standards

September 20, 2011

The United States currently lays claim to the second-highest statutory corporate income tax rate in the developed world.  At 39.2 percent, the rate is only 0.35 percentage points behind Organization for Economic Cooperation and Development (OECD)-leading Japan.  Since 1997, 30 of the OECD's 34 member nations have lowered their statutory rates in an effort to retain and attract investment while the United States has sat idle.  In the process, the average statutory corporate tax rate for OECD nations has dropped from 36.5 percent to the current 25.1 percent.  While this shift has been noted as reason for a com­petitive rate reduction, skeptics accurately note that statutory rates do not reflect the effective rates that corporations actually experience, says Philip Dittmer, an adjunct scholar at the Tax Foundation.

Key findings from Dittmer's study include:

  • Despite anecdotes regarding a few companies that exploit the dubious carve-outs in the tax code to minimize their tax liabilities, the results of 13 unique studies of the effective tax rate on corporate investment across the globe show that the average U.S. effective corporate tax rate, like the statutory rate, is nearly the highest in the world.
  • The most recent studies show that the average effective corporate tax rate for corporations headquartered in the United States is roughly 27 percent, while the average of other nations is about 20 percent.
  • The effective average rate for new investment in the United States is roughly 29.8 percent, 7.4 point above worldwide competition.
  • The U.S. effective corporate tax rate consistently ranks among the five highest of nations considered. The only nation with a higher effective tax rate in each study is Japan, which not by coincidence is the only developed nation with a higher statu­tory rate than the United States.

The literature shows that high corporate taxes and high effective tax rates are detrimental to attracting investment, and subsequently detrimental to economic growth.

Source: Philip Dittmer, "U.S. Corporations Suffer High Effective Tax Rates by International Standards," Tax Foundation, September 2011.

 

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