The Truth About The U.S. Corporate Tax Rate The Right-Wing Media Doesn't Want You To Know
Research ››› ››› MARCUS FELDMAN
Nobel-prize winning economist Paul Krugman rebutted the right-wing talking point claiming the U.S. has the highest corporate tax rate in the world. He's right: Studies have concluded that U.S. rates are similar to other countries, and the Congressional Research Service has found that a reduction in corporate taxes would have a limited impact on growth.
Krugman Rebuts Conservative Talking Point That U.S. Has Highest Corporate Tax Rate In The World
Krugman Responds To Claim That Corporate Taxes Are The Highest In The World: "Nothing You Said About Business Taxes Is Actually True." On the April 29 edition of This Week with George Stephanopoulos, former Republican senatorial candidate and former Hewlett-Packard CEO claimed that the United States has "the single highest business tax rate the in the world," and that high taxes cause job losses and stalls economic growth. Krugman responded that none of Fiorina's claims was "actually true":
KRUGMAN: Nothing you said about business taxes is actually true.
FIORINA: Everything I said about business taxes is true.
KRUGMAN: We can have that discussion in one place, but it's not true.
FIORINA: This isn't an academic discussion, it's clear here.
KRUGMAN: If you look at the actual tax collections in the United States on business, they're lower than other advanced countries. And if you look at the alleged finding that high business taxes cause job losses in states, it goes way on even the -- kick the tires even slightly and the whole thing falls apart. It's just not true. [ABC, This Week with George Stephanopoulos, 4/29/12]
Studies Support Krugman: U.S. Corporate Tax Rates Are Similar To Other Countries
CRS: U.S. Has A Slightly Lower "GDP Weighted Average" Corporate Tax Rate Than Other OECD Countries. A March 31, 2011, Congressional Research Service (CRS) report titled "International Corporate Tax Rate Comparisons and Policy Implications," compared the weighted average of corporate tax rates in the United States and in other countries in the Organization for Economic Co-operation and Development (OECD). It found that the United States has an effective corporate tax rate of 27.1%, compared to the OECD (excluding the United States) average of 27.7%. From the report:
If tax rates are not weighted, then a small economy, such as Iceland, can have the same effect on the average of international rates as a large economy, such as Germany or Japan. In general, smaller countries tend to have lower tax rates and thus unweighted averages are lower than weighted averages in most cases. In the results presented in this report, both weighted and unweighted averages are reported, but weighted averages are more relevant to making comparisons of measures of the tax burden on capital deployed around the world.
The OECD excludes some large countries, such as China and Brazil. Table 2 provides the statutory and effective tax rate comparisons for the 15 largest countries, which account for three quarters of world gross domestic product (GDP). The results are similar to those in Table 1 with the weighted average about 1 percentage point higher. With the production activities deduction the rates differ by 5.6 percentage points. The effective rate is the same.
Other Studies Agree That The Effective Corporate Tax Rate In The U.S. Is Similar To That In Other Countries. In addition to the CRS report, which cites several studies, the Government Accountability Office, the Treasury Department, and the World Bank have all found that the U.S. corporate tax rate is in line with that of other industrialized countries. [Media Matters, 3/31/09]
A Cut In The Corporate Tax Rate Would Not Lead To Significant Economic Growth
CRS: A Tax Cut Of Ten Percentage Points Would Lead To "Increase Of Less Than Two-Tenths Of 1 Percent Of Output." From the March 31, 2011 CRS report:
Regardless of tax differentials, could a U.S. rate cut lead to significant economic gains and revenue feedbacks? Because of the factors that constrain capital flows, estimates for a rate cut from 35% to 25% suggest a modest positive effect on wages and output: an eventual one-time increase of less than two-tenths of 1% of output. Most of this output gain is not an increase in national income because returns to capital imported from abroad belong to foreigners and the returns to U.S. investment abroad that comes back to the United States are already owned by U.S. firms. [Congressional Research Service, 3/31/11]
CRS: Any Gains In Output Would Be Offset By Reaction Of Other Countries. The CRS report found that any U.S. rate reduction might trigger a global reduction of corporate tax rates around the world, creating a situation in which "none will gain capital, but all will lose revenue." From the report:
An important policy issue for the United States is whether other countries might react to a U.S. rate reduction. Evidence shows that the initial cut in corporate tax rates around the world may have been triggered by the cut in the U.S. corporate tax rate from 48% to 35% from 1986 to 1988 as a result of the Tax Reform Act of 1986.
If one country cuts its tax rate, it attracts capital from other countries, which benefits labor and possibly overall national welfare, at the expense of other countries, as discussed above. However, if all countries cut their tax rates, none will gain capital but all will lose revenue. [Congressional Research Service, 3/31/11]
CRS: Proposed Rate Cut Would Lead To $1.2 Trillion To $1.5 Trillion Loss In Revenue. The CRS report found that a 35 percent to 25 percent corporate tax rate reduction would reduce revenue by $1.2 trillion to $1.5 trillion over a 10 year period. Positive economic effects on output would only reduce these revenue cuts by 5-6 percent:
The revenue cost of such a rate cut is estimated at between $1.2 trillion and $1.5 trillion over the next 10 years. Revenue feedback effects from increased investment inflows are estimated to reduce those revenue costs by 5%-6%. Reductions in profit shifting could have larger effects, but even if profit shifting disappeared entirely, it would not likely offset revenue losses. In any case, it seems unlikely that a rate cut to 25% would significantly reduce profit shifting given these transactions are relatively costless and largely constrained by laws, enforcement, and court decisions. [Congressional Research Service, 3/31/11]
Nevertheless, Right-Wing Media Repeatedly Claim That The U.S. Overtaxes Its Corporations
Fox's Cavuto: "When It Comes To Who Pays The Highest Taxes, [The World] Can't Hold A Cash-Collecting Candle To [The United States]." From the April 2 edition of Fox News' Your World with Neil Cavuto:
NEIL CAVUTO (host): Well look at these guys, they are the heavies of our hemisphere, and take a wild guess who has the heaviest tax load? And not just in our neck of the woods. Today I am talking the world.
Welcome everyone I'm Neil Cavuto, and it's official, with apologies to our neighbor from the north and our neighbor to the south, when it comes to who pays the highest taxes, they can't hold a cash-collecting candle to us. Actually no one can. Fox on top of America on top of the most taxed countries on earth. Japan, relinquishing the title after cutting its top corporate tax rate yesterday, leaving us all by our tax-gouging lonesome selves this first business day in April with a combined federal-state top rate of 39.2 percent. Rates in Mexico and Canada are far lower, and those countries are seeing economies grow far faster. They also have lower jobless rates. [Fox News, Your World with Neil Cavuto, 4/2/12, via Media Matters]
Fox's Perino On U.S. Corporate Tax Rate: "We're Number One, But It's Not Something To Necessarily Brag About." From the April 2 edition of Fox News' The Five:
DANA PERINO (co-host): OK, so I wasn't here Friday, and I think Eric had pointed this out, but today is the actual day that we're number one. But it's not necessarily something to brag about. This is -- these are foam fingers from -- wave 'em that guy, everybody -- the RATE Coalition, which is Reforming America's Taxes Equitably. Today at midnight, America became the number one highest corporate tax rate in the world. They're having a contest on Facebook, and so we really want to get on it. And so check out RATECoalition.com. [Fox News, The Five, 4/2/12, via Media Matters]
Heritage: "No Fooling: U.S. Now Has Highest Corporate Tax Rate in the World." From a March 30 post on The Heritage Foundation's blog titled "No Fooling: U.S. Now Has Highest Corporate Tax Rate in the World":
This April Fool's Day, the joke is on all of us. That's because as of April 1, the U.S. now has the highest corporate tax rate in the developed world.
Our high corporate tax rate has long made the U.S. an uncompetitive place for new investment. This has driven new jobs to other, more competitive nations and meant fewer jobs and lower wages for all Americans.
Other developed nations have been cutting their rates for over 20 years. The U.S. did nothing. [The Heritage Foundation, 3/30/12]
AEI: "Who's The April Fool? US Combined Tax Rates Highest In Developed World." From an April 1 American Enterprise Institute post titled "Who's the April Fool? US combined tax rates highest in developed world":
April 1 may be a day for jokes, but on Sunday Japan ceded to the United States a distinction that is no laughing matter: the highest combined statutory corporate tax rate (state, local, and federal) in the developed world.
The United States already resided in first place for its high federal statutory rate. But with Japan's action to reduce its federal rate even lower, their combined rate is less than the United States'.
Since the 1980s, other developed economies have been steadily lowering their tax rates, but the United States has not cut its top federal statutory rate since 1993. In the Organization for Economic Cooperation and Development, the United States is also on the high end for effective tax rates, which are the best indicators for capital investors of their true tax liability. [American Enterprise Institute, 4/1/12]