In this entire thousand-word blast Pethokoukis apparently doesn’t have room to explain the distinction between statutory tax rates and effective rates. But it only takes a sentence or two, so here it is. The statutory rate is the top rate in the tax table. Right now it’s 35% for corporations. The effective rate is what corporations actually pay after their accountants are done combing the tax code for deductions and loopholes. The former is one of the highest in the world. That latter has been falling for years and is now one of the lowest. That’s right! The actual federal income tax paid by corporations is one of the lowest in the world. Even if you think statutory rates are more important, surely this is germane to the conversation?
Thanks, Kevin, for pointing that out! But guess what, the effective average tax rate American corporations pay is also really high, as this 2011 study notes:
We use publicly available financial statement information for 11,602 public corporations from 82 countries from 1988 to 2009 to estimate country-level effective tax rates (ETRs). We find that the location of a multinational and its subsidiaries substantially affects its worldwide ETR. Japanese firms always faced the highest ETRs. U.S. multinationals are among the highest taxed. Multinationals based in tax havens face the lowest taxes. … The findings in this study may hasten the development of U.S. tax reform by showing that U.S. multinational ETRs are among the highest in the world. Moreover, if territorial taxation further lowers the taxes on Japanese and British multinationals, then the U.S. may be forced to provide some tax relief for its multinationals to maintain some level of international tax competitiveness.
And here is a handy table from the study listing statutory and effective corporate tax rates from around the world. Note that the median U.S. effective tax rate is 25 percent for domestic firms and 30 percent for multinational firms vs. 21 percent (DOM) and 22 percent (MNC) for European corporations and 20 percent (DOM) and 19 percent (MNC) for Asian ones.
And a study from last February by AEI’s Kevin Hassett and Aparna Mathur found the following:
The United States is currently underperforming in global tax comparisons. The United States’ top statutory tax rates will soon be the highest in the OECD, and the US effective average and effective marginal tax rates are far above the OECD average. Any effort at corporate tax reform is therefore incomplete without a push toward addressing not only the high statutory rates, but also the relatively high effective average and marginal rates. These rates are the best indicators for capital investors of their true tax liability—much more so than the statutory rates.
By our calculation, the US statutory rate is nearly 10 percentage points higher than the effective average rate and nearly 17 percentage points higher than the effective marginal tax rate. Relative to other OECD countries, the United States is one of the worst performers on this score. The effective average tax rate for all OECD countries excluding the United States is 20.6 percent, while the effective marginal tax rate is 17.3 percent. The corresponding values for the United States are 29 percent and 23.6 percent.