High Corporate Tax Rate & Low Revenue

According to Peter R. Merrill of Tax Analysts, the Treasury Department released a background paper on the corporate tax system of the U.S.:

• “United States has the second highest combined (federal and state) statutory corporate income tax rate among the 30 member countries of the OECD [Organization for Economic Cooperation and Development].”
• “OECD average corporate tax rate has fallen to 28.4 percent in 2006, almost 11 percentage points below the U.S. tax rate.”
• “United States has the second highest combined statutory corporate tax rate among OECD countries, yet is tied with Hungary in raising the fourth lowest amount of combined corporate income tax revenue relative to GDP in 2004.”
• “A recent study by Alex Brill and Kevin Hassett finds that the revenue- maximizing central government corporate tax rate in the OECD is now about 26 percent. In other words, an increase in the average OECD corporate tax rate above 26 percent would be expected to reduce, rather than increase, total OECD member corporate tax revenue.”
• “the U.S. corporate tax conundrum of high rates combined with relatively low revenue is explained by the unusually high share of U.S. business income earned through passthrough entities, rather than the frequently alleged use of inappropriate corporate tax shelters or tax havens.”

To read the entire article, click on The Corporate Tax Conundrum.