Tags: corporate | tax | romney

Study: Corporate Taxes Are Higher Than Most Think

Sunday, 11 Sep 2011 04:33 PM

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Conventional wisdom says corporations are subject to taxes of around 35 percent but most pay much less due to loopholes and tax breaks.

Conventional wisdom is wrong: The overall tax rate on the worldwide income of U.S. corporations, including foreign taxes paid on foreign income, runs between 32.1 percent and 33 percent, close to the statutory rate of 35 percent, according to the Tax Foundation, a Washington think tank.

Even that rate, however, doesn't take into consideration taxes paid at the state and local level, which add about 4 percent, bringing the total effective corporate tax rate to about 37 percent on U.S. companies.

"While a handful of anecdotes have been used to suggest that many U.S. companies are routinely avoiding their federal tax burden through elaborate tax planning, our analysis shows that a good deal of the variance in effective rates across industries is explained by the tax treatment of foreign versus domestic income," says Tax Foundation economist Will McBride.

"Not only do the largest U.S. firms pay the vast majority of corporate income taxes, firms with significant international operations end up with even higher effective rates because of taxes paid to foreign governments on profits earned abroad."

A simplified tax code could end all these headaches, McBride says.
The U.S. tax rate came to an average 27.1 percent in 2008, according to Bloomberg, citing government data.

GOP presidential hopeful Mitt Romney says he wants to cut corporate taxes, which some applaud due to his pragmatic proposals in doing so.

"Romney is not trying to be a reflexive 'government is everywhere and always bad.' He is saying that too big government holds down growth and job creation," says Phillip Swagel, an economics professor at the University of Maryland and a former Treasury official, Bloomberg reports.

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