U.S. Corporate Tax Rate Is 2nd Highest in Industrialized World(taxprof.typepad.com)
taxprof.typepad.com
U.S. Corporate Tax Rate Is 2nd Highest in Industrialized World
http://taxprof.typepad.com/taxprof_blog/2009/08/us-corporate-tax-rate.html
30 comments
I've often wondered about this line of reasoning - that corporations "benefit" from a given nation and its infrastructure but the problem is that it's a two way street. The others use incentives put in place by government encouraging them to do things like research or investments. Local economies, consumers and nations themselves benefit greatly from corporations - both in the obvious point of jobs but even more so in the products and services they provide.
The report you cite at truthout also fairly points out that 80% of those companies paid no taxes because they didn't make any money. This doesn't take away from your point though that we have to ask what kind of society we want, but we also should be asking what's fair and also how services are provided.
The report you cite at truthout also fairly points out that 80% of those companies paid no taxes because they didn't make any money. This doesn't take away from your point though that we have to ask what kind of society we want, but we also should be asking what's fair and also how services are provided.
The trick with 'no profit' is that it's possible for a company to tweak the numbers such that the books show 'no profit' while great profit was made and distributed in ways to allow that (some legal, some illegal, some gray area depending on interpretation). Big companies can take advantage of these rules much more easily than small ones due to a greater ability to allocate resources a legal dept that can explore these options.
I'm troubled by the suggestion that we can make a conscious decision about what kind of society we want.
First, pragmatically: the work of Friedrich Hayek shows that it's quite impossible for any top-down control mechanism to manage this stuff properly.
Second, philosophically: given the foundation that America is supposed to build on, I don't see how any group of people has the right to actively force a structure of society onto the others.
First, pragmatically: the work of Friedrich Hayek shows that it's quite impossible for any top-down control mechanism to manage this stuff properly.
Second, philosophically: given the foundation that America is supposed to build on, I don't see how any group of people has the right to actively force a structure of society onto the others.
Surely we build societies at least as much by our collective individual behavior as by centralized control? "Be the change you want to see in the world."
OK, but there aren't many (any?) corporations that actually pay that rate. The effective tax rate for US corporate income -- what companies actually pay -- is about 25%.
The "35% corporate tax rate" is a disingenuous business-lobby talking point. Actual effective US corporate taxes are lower than those in many industrialized European countries.
The "35% corporate tax rate" is a disingenuous business-lobby talking point. Actual effective US corporate taxes are lower than those in many industrialized European countries.
"business-lobby" ?
Does that mean "people in favor of profits, job creation, and value creation" ?
Count me in to that lobby.
Because, frankly, what's the alternative? Thinking that we have too much entrepreneurialism, value creation, innovation, and employment, and we should tax it more so that we end up with less of it?
Does that mean "people in favor of profits, job creation, and value creation" ?
Count me in to that lobby.
Because, frankly, what's the alternative? Thinking that we have too much entrepreneurialism, value creation, innovation, and employment, and we should tax it more so that we end up with less of it?
That's a nice straw man you're arguing against.
Lobbying for less regulation, lower taxes and free markets is one position. Lobbying for increased oversight of potentially damaging behavior, increased transparency in industry, reduced rent seeking and universal standards of safety is another. The right mix is somewhere in between the two extremes of course and each side can point to massive failures of the other's philosophy.
Implicitly framing one side as "people who don't like profits or jobs" is distasteful and frankly surprising to see here.
Lobbying for less regulation, lower taxes and free markets is one position. Lobbying for increased oversight of potentially damaging behavior, increased transparency in industry, reduced rent seeking and universal standards of safety is another. The right mix is somewhere in between the two extremes of course and each side can point to massive failures of the other's philosophy.
Implicitly framing one side as "people who don't like profits or jobs" is distasteful and frankly surprising to see here.
Lobbying for free markets necessarily implies eliminating rent seeking.
You'll not that the only way that rent seeking is possible is when the government gets its claws into the industry. Government regulation becomes the tool of those it claims to watch. It happens every time: well-meaning regulators get subverted toward the ends of business lobbyists.
Is there any reason to believe that something will suddenly turn this around so that the government is never suberted?
You'll not that the only way that rent seeking is possible is when the government gets its claws into the industry. Government regulation becomes the tool of those it claims to watch. It happens every time: well-meaning regulators get subverted toward the ends of business lobbyists.
Is there any reason to believe that something will suddenly turn this around so that the government is never suberted?
I'm not sure that rent seeking requires gov't intervention, I suspect there are instances of monopoly- or oligarchy-driven rent-seeking behavior but I don't have the desire right now to do a comprehensive search.
Fundamentally I don't disagree, and I think my comment is pretty clear. I'm not making a specific argument on where the balance of regulation ought to exist. I take issue only with the framing of the debate in terms that make it impossible to hold a conversation. No offense is meant towards anyone, I'd just prefer to keep the discussion at a bit more civil tone. We already have a reddit.
Edit: nuked two paras that didn't come out right.
Fundamentally I don't disagree, and I think my comment is pretty clear. I'm not making a specific argument on where the balance of regulation ought to exist. I take issue only with the framing of the debate in terms that make it impossible to hold a conversation. No offense is meant towards anyone, I'd just prefer to keep the discussion at a bit more civil tone. We already have a reddit.
Edit: nuked two paras that didn't come out right.
I concede the finer point. It's probably true that rent seeking can be accomplished with the intervention of government as such.
I maintain that, because government is so accessible and because they carry such a big stick, the vast, vast portion of rent seeking is accomplished by subverting government regulation.
That said, I'm up-voting your reply because it is a relevant argument. I just watched a TED video with Paul Romer where he talked about the effect of societal rules on development: not just governmental laws, but broader societal norms that might prevent progress.
I maintain that, because government is so accessible and because they carry such a big stick, the vast, vast portion of rent seeking is accomplished by subverting government regulation.
That said, I'm up-voting your reply because it is a relevant argument. I just watched a TED video with Paul Romer where he talked about the effect of societal rules on development: not just governmental laws, but broader societal norms that might prevent progress.
I concur entirely, it's a risky bargain especially considering the temptation to fight rent-seeking with more regulation with the attendant second- and third-order effects.
Well said.
Well said.
Because, frankly, what's the alternative?
Lobbying to preserve your government made monopoly, to keep in place subsidies, to restrict competition, etc. It ain't all flowers and sunshine and free markets.
It doesn't matter if it's big labor or big business or big government, they are all bad.
Lobbying to preserve your government made monopoly, to keep in place subsidies, to restrict competition, etc. It ain't all flowers and sunshine and free markets.
It doesn't matter if it's big labor or big business or big government, they are all bad.
If other countries have lower taxes, why don't they have more entrepreneurialism, value creation, innovation, and employment than America?
Taxes are obviously only a part of the equation but if you look at the trend lines, it's definitely not good. Taxes elsewhere have been falling significantly while those in the US have stayed the same. I do think other places in the world are seeing greater levels of entrepreneurialism (at least in the places I travel). The US is now nearing if not exceeding levels of unemployment in places like Canada and Europe.
The entrepreneurial rate in most countries had nowhere to go _but_ up, so this really tells us nothing more than the fact that a lot of countries have woken up and reduced the structural disincentives to entrepreneurship that had been in place. It is also not possible at this time for a country to be 100% entrepreneurs (or even close to that) and every additional percentage of entrepreneurship takes more and more effort.
Corporate taxes, beyond the obviously bad levels you see at the extremes, are not as directly tied to either entrepreneurship nor unemployment rates as you would suggest (c.f. in the late 90s we had higher taxes and much lower unemployment numbers -- the reason why this was the case is easy to see in retrospect, but it is a simple and direct example of how your arguments are flawed.)
Corporate taxes, beyond the obviously bad levels you see at the extremes, are not as directly tied to either entrepreneurship nor unemployment rates as you would suggest (c.f. in the late 90s we had higher taxes and much lower unemployment numbers -- the reason why this was the case is easy to see in retrospect, but it is a simple and direct example of how your arguments are flawed.)
My point is just that the "35%" figure is extremely disingenuous.
Your position is perfectly valid, but lets have a debate where the facts lead to a conclusion, not the other way around.
Your position is perfectly valid, but lets have a debate where the facts lead to a conclusion, not the other way around.
Do other countries' companies pay something closer to the official tax rate?
It's also a good idea to keep in mind that Europe can be a little more corporatist than the US. e.g. a German auto company might pay extra taxes in order to give their future engineers subsidized education, or to ensure that unemployment benefits are high enough that when they fire people, they can hire them back a year or two later. American companies often have much more diffused benefits.
It's also a good idea to keep in mind that Europe can be a little more corporatist than the US. e.g. a German auto company might pay extra taxes in order to give their future engineers subsidized education, or to ensure that unemployment benefits are high enough that when they fire people, they can hire them back a year or two later. American companies often have much more diffused benefits.
It's all over the map. Media Matters has a chart based on World Bank data: http://mediamatters.org/research/200902030003
This would be true in a lot (if not most) of the OECD/industrialized countries that the amount paid and effective marginal tax rates are significantly higher. But either way, it's discouraging for those who seek to create businesses in the US. The quasi-good news may be that a lot of other countries are in worse financial shape and may increase their marginal tax rates in coming years but with the recent large and projected deficits in the US I suspect US marginal tax rates could rise significantly as well.
I see your point, but I have a hard time believing there are many people (certainly not here on HN) who are thinking, I'd really like to start a company, but the taxes are just too high.
Personally, I'd be a lot more worried about getting health insurance for myself and any other employees of my startup than paying the income tax.
Personally, I'd be a lot more worried about getting health insurance for myself and any other employees of my startup than paying the income tax.
Fair point - though Japan is the one country with marginal tax rates higher than the US and it's been in an economic malaise for over a decade. Understanding that taxes and policy often requires trade offs, it would appear that the projected deficits don't take into account any healthcare plan (http://online.wsj.com/article/SB123137375313762735.html), the US obviously has some difficult decisions ahead of it.
PS I don't think you could characterize the OECD to be part of a "disingenuous business lobby" group.
PS I don't think you could characterize the OECD to be part of a "disingenuous business lobby" group.
The quasi-good news may be that a lot of other countries ... may increase their marginal tax rates
I'm not seeing anything good in that.
The statement seems to make the common assumption that economics is a zero-sum game, that somehow the harm that other nations suffer makes us better off. But this is absolutely not true.
When anyone is better off, it improves the lot of all, at least marginally. For example, a rich USA is able to provide aid to much of the rest of the world; our ailing economy might make some people smile as they think that the richies are losing out, but that just impedes our ability to aid. Even indirectly, riches provide the opportunity to research better agricultural practices, better healthcare, etc., and those things wind up benefitting all. Any country that's richer can afford to be more environmentally conscious, and that's a boon to all earthlings.
So I'm not able to take any pleasure in the idea that other nations might abuse their wealth-makers as badly as we do our own.
I'm not seeing anything good in that.
The statement seems to make the common assumption that economics is a zero-sum game, that somehow the harm that other nations suffer makes us better off. But this is absolutely not true.
When anyone is better off, it improves the lot of all, at least marginally. For example, a rich USA is able to provide aid to much of the rest of the world; our ailing economy might make some people smile as they think that the richies are losing out, but that just impedes our ability to aid. Even indirectly, riches provide the opportunity to research better agricultural practices, better healthcare, etc., and those things wind up benefitting all. Any country that's richer can afford to be more environmentally conscious, and that's a boon to all earthlings.
So I'm not able to take any pleasure in the idea that other nations might abuse their wealth-makers as badly as we do our own.
If you could instantaneously eliminate all "tax haven locales" (by their decision to increase tax rates to say 25-30%), you would in fact make the US somewhat better off, and those tax haven locales dramatically worse off.
That's more a sign that US tax policy is not competing effectively for company domiciles than it is to say that the tax havens have it wrong. Clearly, they are banking substantial tax money (at substantially lower rates) at the expense of higher tax jurisdictions.
That's more a sign that US tax policy is not competing effectively for company domiciles than it is to say that the tax havens have it wrong. Clearly, they are banking substantial tax money (at substantially lower rates) at the expense of higher tax jurisdictions.
If you could instantaneously eliminate all "tax haven locales" ... you would in fact make the US somewhat better off
That's not at all clear to me.
It might be true that it would increase US government tax revenue, but
A. It's not clear that's true. There may be other reasons keeping businesses out of America (say, SarbOx for example).
B. It's not clear that increasing the revenue of the US government at the expense of the corporations (and their employees and their shareholders) is making us better off.
That's not at all clear to me.
It might be true that it would increase US government tax revenue, but
A. It's not clear that's true. There may be other reasons keeping businesses out of America (say, SarbOx for example).
B. It's not clear that increasing the revenue of the US government at the expense of the corporations (and their employees and their shareholders) is making us better off.
Re: A: I was talking only about the relative effects of a single change: eliminating all tax haven locales at once. The likelihood that exactly zero of those displaced companies would re-domicile and shift revenue to the US, SabOx404 notwithstanding, is basically zero.
Re: B. You're absolutely right. I didn't think that all the way through to absolute effects. For me personally, it would certainly be negative, so I clearly blew it here. Upvoted.
Re: B. You're absolutely right. I didn't think that all the way through to absolute effects. For me personally, it would certainly be negative, so I clearly blew it here. Upvoted.
This meme is one that deserves a quick death.
First, how can you talk about tax rates without, er, talking about tax rates? In other words, if your only option is to say "well when I mean tax rates, I mean this other thing that's more statistically significant than what you mean" then that's really redefining terms, isn't it?
And assuming redefining terms is fine (I have no problem with it unless it's simply an excuse to shut down debate), effective tax rate is a statistical artifact, not the law. That means it's an average of all taxes paid -- both by huge megacorporations who have teams of lawyers and can locate partially overseas and by mom and pop internet startups who can't. And who do you think pays what, anyway? Once you get into statistics, methodology matters. If I remember correctly, the effective rate an average computed by total tax dollars, not a mean. That means that one Tycho who pays almost no US Taxes is going to offset about a million entrepreneurs who are having to pony up the full 35% rate.
High corporate rates, just like high income tax rates, will not hurt those already rich or making lots of money. The people it hurts are the folks trying to transition, trying to grow. The ones where five or ten percent make a huge difference.
The frustrating part about this effective tax rate discussion is that it presents a problem from which no further discussion is possible. I.e., suppose the real tax rate is 50% and the effective tax rate is 20%. Does that mean you should increase taxes by another 10%? Would that make the effective rate 30%? Of course not -- that's mushy thinking. But yet what are you supposed to do with this effective rate data? It seems to exist for no other purpose than to end debate on the effects of tax rates on corporations.
First, how can you talk about tax rates without, er, talking about tax rates? In other words, if your only option is to say "well when I mean tax rates, I mean this other thing that's more statistically significant than what you mean" then that's really redefining terms, isn't it?
And assuming redefining terms is fine (I have no problem with it unless it's simply an excuse to shut down debate), effective tax rate is a statistical artifact, not the law. That means it's an average of all taxes paid -- both by huge megacorporations who have teams of lawyers and can locate partially overseas and by mom and pop internet startups who can't. And who do you think pays what, anyway? Once you get into statistics, methodology matters. If I remember correctly, the effective rate an average computed by total tax dollars, not a mean. That means that one Tycho who pays almost no US Taxes is going to offset about a million entrepreneurs who are having to pony up the full 35% rate.
High corporate rates, just like high income tax rates, will not hurt those already rich or making lots of money. The people it hurts are the folks trying to transition, trying to grow. The ones where five or ten percent make a huge difference.
The frustrating part about this effective tax rate discussion is that it presents a problem from which no further discussion is possible. I.e., suppose the real tax rate is 50% and the effective tax rate is 20%. Does that mean you should increase taxes by another 10%? Would that make the effective rate 30%? Of course not -- that's mushy thinking. But yet what are you supposed to do with this effective rate data? It seems to exist for no other purpose than to end debate on the effects of tax rates on corporations.
OK, we can debate different ways of averaging and whatnot, but the effective tax rate is the the thing we're debating. I think most people would agree that it is more relevant how much you actually paid in taxes last year than in how much you could have paid had it not been for various deductions and credits.
And, surely you're aware that the "35% corporate tax rate" number is a bit of a statistical creation as well? We have a progressive tax code in the US, so small businesses that make less money are taxed at a lower rate. In no way is it accurate to argue that entrepreneurs making under $100k pay 35% federal income tax -- even if we ignore deductions, credits, and everything else.
Indeed, according to the Small Business Administration, sole proprietorships -- i.e. the mom & pops -- faced the lowest effective tax rate of any group last year: 13.3%. I'm not a statistician, but I don't think it's just the Tycos of the world skewing the stats.
And, surely you're aware that the "35% corporate tax rate" number is a bit of a statistical creation as well? We have a progressive tax code in the US, so small businesses that make less money are taxed at a lower rate. In no way is it accurate to argue that entrepreneurs making under $100k pay 35% federal income tax -- even if we ignore deductions, credits, and everything else.
Indeed, according to the Small Business Administration, sole proprietorships -- i.e. the mom & pops -- faced the lowest effective tax rate of any group last year: 13.3%. I'm not a statistician, but I don't think it's just the Tycos of the world skewing the stats.
But you see the point, right? The discussion begins with the question of legal tax rate on startups and corps. When you redefine the terms such that we're talking about some statistical artifact, you're basically saying the tax system is too complex to talk about it terms of what it actually says. Which is basically saying that discussion on the effects of tax rates can't take place at all because there isn't such a thing as a "tax rate"
I can't argue with the fact that the tax code is so complex as to make discussion useless, but I would like to point out that discussion has to take place around something. And I wouldn't pick average dollars paid as that something -- seems like a silly number.
Where do we go from here? A detailed discussion on survey methodology? Cherry-picking authoritative sources? A discussion about how early-stage businesses lose a lot of money? Or how income can be deferred using various accounting techniques?
But you see, the meme has accomplished its goal: we are no longer talking about what the law says about what corporations should pay, which is the only high-level, simple concept that we have a chance to reach some conclusions about. After this its all just down-in-the-weeds, wonkish stuff.
So no thanks.
I can't argue with the fact that the tax code is so complex as to make discussion useless, but I would like to point out that discussion has to take place around something. And I wouldn't pick average dollars paid as that something -- seems like a silly number.
Where do we go from here? A detailed discussion on survey methodology? Cherry-picking authoritative sources? A discussion about how early-stage businesses lose a lot of money? Or how income can be deferred using various accounting techniques?
But you see, the meme has accomplished its goal: we are no longer talking about what the law says about what corporations should pay, which is the only high-level, simple concept that we have a chance to reach some conclusions about. After this its all just down-in-the-weeds, wonkish stuff.
So no thanks.
I'm surprised it's higher than in Mexico. I thought our government liked to screw the corporations big time... Or maybe that's one of the reasons the country remains an underdog?
'Most Corporations Don't Pay Income Taxes' http://www.truthout.org/article/most-corporations-dont-pay-i...
'Big business must pay it's fair share' http://www.cleveland.com/opinion/index.ssf/2009/07/big_busin...
You can slice the numbers and both your point and my point turn out to be true. The questions become: what kind of society do we want? how can we build that society? and who will pay for it? It doesn't seem unreasonable to ask corporations who benefit from the infrastructure of the nation (including transportation, educational systems, public libraries, medical systems) to help pay for those benefits.