Tuesday, October 28, 2008

McCain and Palin Wrong on Corporate Taxes

This won't be news to long-time readers of this site, but a new CBPP study offers a chance to review an important point.

Sarah Palin today (echoing what McCain has said many times):

We’ll cut the capital gains tax and we’ll cut business taxes. Right now the U.S. business tax is the second highest in the world.
The Center on Budget and Policy Priorities yesterday:
The U.S. corporate tax burden is smaller than average for developed countries. Corporations in the 19 member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent.

Nevertheless, some have argued that U.S. corporate tax rates unduly burden U.S. companies by pointing to the country’s top statutory tax rate, which is 35 percent. For example, a recent Wall Street Journal editorial calling for corporate tax cuts noted that this is the second highest top statutory tax rate among developed countries. While true, this gives the false impression that the corporate tax burden is greater here than in other developed countries. Because the U.S. tax code offers so many deductions, credits, and other mechanisms by which corporations can reduce their taxes, the actual percentage of profits that U.S. corporations pay in taxes — or what analysts refer to as their effective tax rate — is not high, compared to other developed countries.


James said...

Perhaps these numbers are true for small companies, but they sure aren't true for Fortune 500 companies. I challenge you to read the financial statements for a random selection of ten profitable Fortune 500 companies and calculate their average tax rate. Simply take the "Income taxes" line from the income statement and divide it by the "Earnings before taxes" line. Let's see what numbers you come up with.

Don Pedro said...

I'll pass on your challenge. The finding here is not controversial.

If you look at the CBPP paper we link to, you'll see that the citations are to analyses that have been done by the U.S. Treasury, the Congressional Budget Office, the OECD, and the GAO. Several of those are limited to multinational companies, which are presumably not generally small.

If you want to investigate the issue further, you should read those analyses.

pants said...

I just can't believe they are still repeating that line. My head and my desk are getting to be very well acquainted these days...

C-mo said...

the 2007 tax rate of the 22 profitable companies in the top 25 of the fortune 500 is 32%, rounded up. This was calculated from their balance sheets, available on yahoo finance. I'll let you know when I'm done with the other 475.