Are Business Taxes Too High?

September 30, 2014

Are Business Taxes Too High? The debate continues between those who think that the United States corporate tax rate is too high and those who think that it is in line with the average corporate tax rate for other countries. Although it is unlikely that a major tax reform bill will be introduced before the November elections, many believe that one is on the horizon soon after that. Many business leaders and politicians believe that lowering the corporate tax rate is necessary in order to make the United States more attractive to business. Others oppose a reduction in business taxes, sighting the loss of tax revenues that would necessarily follow.

The results of two fairly recent studies on the corporate tax rate are outlined below:

New York Times Analysis (2013)

Due to such tax planning strategies such as shifting profits to foreign subsidiaries and adjusting prices, multinational companies are often able to reduce their effective corporate tax rates.
There was a remarkable difference in the effective corporate tax rates paid by major United States firms. The rates varied from 3%, 6% and 14 % for Duke Energy, Motorola and Apple, respectively, to rates in excess of 70% for Conoco, Phillips, Motorola and Goodyear Tire.
Over 5% of the Fortune 500 companies paid no federal business taxes between 2008 and 2012.
During the time period of the study, the effective corporate tax rate in the United States was approximately 29% (6% under the 35% statutory rate).

Congressional Research Study (2014)

When state business taxes are included, the overall corporate tax rate for United States companies averages 39.2%.
The effective corporate tax rate was calculated at 27.1% as compared to a 27.7% effective tax rate for the 31 countries in the Organization for Economic Development.
Lowering the corporate tax rate to 25% would amount to over a trillion dollars in lost tax revenues for the United States.
The effect of having fewer corporate profits shifted outside the country would be minimal due to the fact that many foreign countries have a statutory business tax rate below 25%.

While there is data to support opinions on both sides of the business tax argument, most agree that some type of corporate tax reform will be on the agenda sometime after the November elections. In addition to looking at the statutory corporate tax rate, such reform will very likely address related business tax issues including corporate double taxation and income from pass-through business entities such as partnerships, S-corporations.

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