It is widely acknowledged that the U.S. has very close to the highest statutory corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate in the industrialized world – just behind Japan. Yet, many commentators like to cite OECD data that indicates the U.S. has relatively low 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. revenues as a share of GDP. This is true, and it is a pattern that holds across OECD countries. As the following table illustrates, based on OECD data from 2009 (most recent), those countries with high statutory rates generally also have low revenues. In fact, there is essentially zero correlation between statutory rates and revenues, and when we exclude the outliers, Norway (oil revenue) and Greece (bankrupt), the correlation is slightly negative.
|
OECD Corporate Income Tax Revenue and Statutory Rates, 2009 |
|||||
|
OECD Rank (Combined Statutory Rate) |
Country |
Federal Rate |
Top State or Provincial Rate |
Combined Federal and State Rate (Adjusted) |
Revenue as a Percentage of GDP |
|
1 |
Japan |
30 |
11.56 |
39.54 |
2.4 |
|
2 |
United States |
35 |
6.3 |
39.1 |
2.1 |
|
3 |
France |
34.43 |
34.4 |
1.4 |
|
|
4 |
Belgium |
33.99 |
33.99 |
2.5 |
|
|
5 |
Canada |
19 |
12.3 |
31.32 |
2.5 |
|
6 |
Germany |
15.83 |
14.4 |
30.18 |
1.3 |
|
7 |
New Zealand |
30 |
30 |
3.3 |
|
|
8 |
Spain |
30 |
30 |
2.2 |
|
|
9 |
Australia |
30 |
30 |
N/A |
|
|
10 |
Luxembourg |
21.84 |
6.75 |
28.59 |
5.4 |
|
11 |
UK |
28 |
28 |
2.8 |
|
|
12 |
Mexico |
28 |
28 |
N/A |
|
|
13 |
Norway |
28 |
28 |
8.2 |
|
|
14 |
Italy |
27.5 |
27.5 |
3.1 |
|
|
15 |
Portugal |
25 |
1.5 |
26.5 |
N/A |
|
16 |
Sweden |
26.3 |
26.3 |
2.8 |
|
|
17 |
Finland |
26 |
26 |
2.0 |
|
|
18 |
Netherlands |
25.5 |
25.5 |
N/A |
|
|
19 |
Austria |
25 |
25 |
1.7 |
|
|
20 |
Denmark |
25 |
25 |
2.4 |
|
|
21 |
Greece |
25 |
25 |
0.0 |
|
|
22 |
Korea |
22 |
2.5 |
24.2 |
3.7 |
|
23 |
Switzerland |
8.50 |
14.47 |
21.17 |
3.4 |
|
24 |
Czech Republic |
20 |
20 |
3.7 |
|
|
25 |
Hungary |
20 |
20 |
2.2 |
|
|
26 |
Turkey |
20 |
20 |
1.9 |
|
|
27 |
Poland |
19 |
19 |
N/A |
|
|
28 |
Slovak Rep. |
19 |
19 |
2.8 |
|
|
29 |
Iceland |
15 |
15 |
1.1 |
|
|
30 |
Ireland |
12.5 |
12.5 |
2.4 |
So, paradoxically, raising rates would have the effect of lowering revenues. Alex Brill and Kevin Hassett do a more rigorous analysis and find that revenue is maximized at about a 26 percent federal rate – a full 9 points lower than the current U.S. rate of 35 percent.
The reason is that capital is mobile, and increasingly so. Corporate decision makers have a fiduciary responsibility to maximize shareholder value, which is achieved by maximizing sales (making customers happy, both here and abroad) while minimizing costs, including tax costs. When a company chooses to move operations to, say, Switzerland, it is because there is a better mix of tax costs, social benefits, and business opportunities. America is simply losing on this front, and the tragedy is that it could be changed very quickly by lowering the statutory rate.
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