The Wall Street Journal misleadingly claimed in an editorial that the U.S. corporate tax rate "is higher than in all of Europe." In fact, according to the Government Accountability Office, "Statutory tax rates do not provide a complete measure of the burden that a tax system imposes on business income." Additionally, World Bank and GAO data indicate that the U.S. effective corporate tax rate is lower than 35 percent and lower than several developed -- including some European -- economies.
In a January 30 editorial, The Wall Street Journal asserted, "Democrats object to cutting the U.S. 35 percent corporate tax rate -- which is higher than in all of Europe." But the Journal's comparison of the U.S. statutory corporate tax rate to the statutory rates of other nations is misleading. According to an August 2008 report by the Government Accountability Office (GAO), "Statutory tax rates do not provide a complete measure of the burden that a tax system imposes on business income because many other aspects of the system, such as exemptions, deferrals, tax credits, and other forms of incentives, also determine the amount of tax a business ultimately pays on its income." Indeed, World Bank and GAO data indicate that the U.S. effective corporate tax rate is lower than 35 percent and lower than several developed -- including some European -- economies.
In its August 2008 report, the GAO estimated that "[t]he average U.S. effective tax rate on the domestic income of large corporations with positive domestic income in 2004 was an estimated 25.2 percent." Further, in its Paying Taxes 2009 publication, based on its 2009 Doing Business report, the World Bank-International Finance Corporation estimated that the United States has a lower effective rate of current corporate tax than several developed economies, including Germany and Italy. Moreover, in June 2007, the Treasury Department concluded: "If special provisions were eliminated, the top corporate tax rate could be lowered to 27 percent or more than 40 percent expensing could be provided to all businesses for new the cost of tangible investments, and the tax system would produce the same level of revenue."
In Paying Taxes 2009: The Global Picture, the World Bank noted that "reducing the statutory rate of corporate income tax has been the most popular government tax reform in the period. However in most of the economies, the case study company does not pay corporate income tax at the statutory rate on its profit before tax, since the tax rules require adjustments to be made to this in order to calculate taxable profits." The World Bank continued:
A common example is to substitute tax depreciation for commercial amortisation of assets.
The effective rate of current corporate income tax can be defined as the actual rate of corporate income tax paid as a percentage of profit before tax (see Appendix 2 for an explanation of the calculation). Figure 2.7 compares this effective rate with the statutory rate of corporate income tax for the G8 and BRIC (Brazil, Russia, India and China) economies, and shows that the two are often not the same.
The key point to recognise is that it is not simply the statutory rate of corporate income tax that is important here, but also the effective tax rate for current corporate income tax, taking into account all the additions and deductions to profit before tax that tax rules may require.
The report included the following figure showing that the United States has a lower effective rate of current corporate tax than several G8 and BRIC countries:
In a January 29 Wall Street Journal op-ed, Rush Limbaugh similarly claimed that the U.S. corporate tax rate is "at 35%, among the highest of all industrialized nations."
From the Wall Street Journal's January 30 editorial:
So let's see: Democrats object to cutting the U.S. 35% corporate tax rate -- which is higher than in all of Europe, undermines economic growth and discourages job creation -- for all companies on grounds that it favors the rich and powerful. But Democrats will carve out tax loopholes for businesses they like and that write them campaign checks.
From Limbaugh's January 29 op-ed:
I say, cut the U.S. corporate tax rate -- at 35%, among the highest of all industrialized nations -- in half. Suspend the capital gains tax for a year to incentivize new investment, after which it would be reimposed at 10%. Then get out of the way! Once Wall Street starts ticking up 500 points a day, the rest of the private sector will follow. There's no reason to tell the American people their future is bleak. There's no reason, as the administration is doing, to depress their hopes. There's no reason to insist that recovery can't happen quickly, because it can.