Corporate Tax Rates & Reform

Chye-Ching Huang in the Center on Budget and Policy Priorities in October 2008 reported the following:

• In the Organization for Economic Cooperation and Development (OECD), corporations in 19 of the member states paid 16.1% of their profits in taxes between the years 2000 and 2005
• The average rate in the U.S. was 13.4%
• A “2005 Congressional Budget Office study found that the effective marginal corporate rate – the rate paid on the last dollar of income earned and arguably the tax rate most relevant for investment decisions – on debt-financed investment in machinery was negative, estimated at -46 percent”
• “For small corporations, another reason that the top statutory corporate tax rate is an inaccurate measure of the U.S. corporate tax burden is that many of these companies do not face the top rate.”
• “In contrast to many other developed countries, which apply the same tax rate to all taxable corporate income, the United States has a graduated corporate tax structure, in which corporations with smaller incomes are taxed at rates below 35 percent. While a very large share of taxable corporate income is earned by corporations large enough to face the top rate, in terms of numbers, most U.S. corporations face a statutory rate lower than the 35 percent top rate”
• The report concluded that “corporate tax reform that eliminates a portion of the existing tax breaks and uses the savings to offset the cost of reducing statutory corporate tax rates would likely improve economic efficiency without increasing deficits and debt”

To read the entire article, click on Putting U.S. Corporate Taxes in Perspective.