Were the U.S. to get its own headline from the recently released Paying Taxes 2011—a joint product of PricewaterhouseCoopers, the World Bank, and the International Finance Corporation—it would be “The U.S.: where it is moderately easy to pay relatively high 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. es.”
That is hardly the kind of marketing slogan that will bring investors flocking to do business in the U.S.
The report ranks 183 economies on the compliance and tax burden faced by a standard firm with 60 employees. The compliance burden is broken down into three indicators: the ease of paying taxes; the number of tax payments a firm must make; and the time it takes the firm to comply. The tax burden (called the Total Tax Rate TTR) measures the percentage of profits going to pay not only the income tax, but any sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es, labor taxes, and mandatory contributions a firm might pay.
When it comes to the ease of paying corporate taxes and the time it takes to comply with them, the U.S. ranks 62nd and 66th respectively out of the 183 economies. Not terrible, but not great either. By contrast, Canada ranks 10th best in ease of paying and 34th best in the amount of time wasted. The U.S. does rank a bit better (35th) when it comes to the number of tax payments a firm must make. Canada, however, ranks 15th.
The U.S.’s Total Tax Rate of 48.8 percent gives it a below-average ranking of 124th. The world average TTR was 47.8 percent while the average rate among EU countries was 44.2 percent. Closer to home, Canada ranked 37th overall, with a TTR of 29.2 percent.
The factor that boosts the U.S.’s TTR the most is our profits tax, which totals 27.6 percent of profits. In Canada, by contrast, the effective tax rate on profits is 9.8 percent, whereas in France the rate is 8.2 percent, in Germany 22.9 percent, and in the United Kingdom it is 23.2 percent.
The current talk of fundamental tax reform, especially cutting the U.S. corporate tax rate, is a welcome sign of the growing recognition that our tax system is undermining our global competitiveness. Hopefully, the talk will soon turn to action.Share