How Much Do Corporations Pay in Taxes?

Richard Borean

Wednesday, February 11th, 2015

How much do corporations actually pay in taxes? With the ongoing debate on corporate taxation, inversions, and international competitiveness, this question remains at the core of the tax reform debate in the United States. It’s true that the U.S. has the highest statutory corporate tax rate in the industrialized world, but some argue that corporations don’t pay anything close to the listed rate in the tax code. In reality, however, U.S. corporations face a high tax on additional investment with the second highest marginal effective tax rate in the OECD at 35.3 percent, according to a new study from the nonpartisan Tax Foundation.

The study’s key findings include:

  • The United States has the second highest marginal effective tax rate on corporate investment in the developed world at 35.3 percent—behind only France.
  • While the U.S.’s marginal effective tax rate has remained stagnant around 35 percent over the last 10 years, the average marginal effective tax rate on corporate investment has fallen by 2.9 percent in the OECD and 6.8 percent in the G7.
  • Since 2005, 63 countries have cut their statutory corporate tax rate, lowering the average statutory tax rate to 24.4 percent across the 95 countries surveyed. Meanwhile, the U.S. corporate tax rate has remained stagnant at above 39 percent.
  • The lack of U.S. corporate tax competitiveness reduces investment and economic growth, undermines productivity, and encourages companies to move business to other countries.
  • Options to reform the U.S. corporate tax code include: reducing the top rate to 25 percent, limiting tax preferences, moving to a territorial tax system, and improving the integration of the individual and corporate tax codes.

“The United States is prime for corporate tax reform” said Dr. Jack Mintz, author of the study and Director and Palmer Chair in Public Policy, University of Calgary.  “Instead of following a failed strategy of high rates and narrow bases, the U.S. federal and state governments should seek to reform business tax policies by lowering rates to international levels and broadening bases to make the business tax structure more neutral in application. It is a winning strategy to increase investment and economic growth as well as ensure that the corporate income tax is a stable and more efficient revenue collector.”

Unlike in Canada where income earned and taxes paid by corporations appear to correlate with each other along with explainable economic interruptions, U.S. business taxation is distorting. The high corporate income tax rate has become a cause of tax inefficiency and ineffectiveness, leading businesses to excessive tax planning or incentivizing them to leave the U.S. corporate tax system through corporate inversion or other means.

Full Report: U.S. Corporate Taxation: Prime for Reform