It’s hard to deny the fact that the U.S. has the highest statutory corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate in the developed world, at 39.1 percent including federal, state and local corporate taxes. But many, such as David Leonhardt of the NY Times, continue to promote the myth that “corporate loopholes” make the U.S. effective tax rate (ETR) relatively low:
The soda industry’s success at legally avoiding taxes shows why so many economists and tax experts believe the United States corporate-tax code is terribly flawed. It includes a notoriously high statutory rate that causes companies to devote resources to avoiding taxes. But it has so many loopholes that the effective corporate tax rate in the United States is slightly lower than the average for rich countries.
The linked testimony by Jane Gravelle does not support that claim. Jane argues the differences are not great, but she still shows the U.S. generally has an above average corporate effective tax rate according to numerous studies (see table 1).
In 2011, we reviewed the 13 most recent studies on corporate ETRs and found that invariably the U.S. has one of the highest ETRs in the developed world. A couple of those studies have been updated since, and the results are even starker:
1) Bilicka and Devereux of Oxford University find the U.S. has the second highest ETR in the developed world (both in terms of marginal and average effective tax rates).
2) Chen and Mintz of the University of Calgary find the U.S. has the highest effective marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. in the developed world.
Generally, more recent studies will show the U.S. in a less competitive position because every year more countries lower their corporate rate further and further, while the U.S. stands still. It is therefore particularly misleading to claim that the U.S. has a low corporate effective tax rate.
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