Not So Stories: “2nd Highest” Corporate Tax Rate

Bill Scher

In the latest Bloggingheads.tv installment of “The Week In Blog” with The Heritage Foundation’s Conn Carroll and myself, Conn offered a talking point I’ve been hearing a lot from conservatives lately: that America has the second highest corporate tax rate in the world. Watch it below.

You’ll likely hear this a lot more because Sen. John McCain uses the line as justification for his proposal to cut the corporate tax rate from 35% to 25%.

There’s just one problem. That America has the second highest corporate tax rate is, as Rick would say, “not so.”

Jason Furman of the Brookings Institution (and as Robert Borosage commented on last week, now Sen. Barack Obama’s economy policy director) explained in a Washington Post op-ed last year (emphasis added):

The United States has the second highest corporate tax rate of the 30 countries in the Organization of Economic Cooperation and Development (OECD). But because the United States has so many generous special tax preferences for businesses, it collects the fourth lowest corporate tax revenues as a share of GDP among all OECD countries.

Conn went on to argue that “Obama’s new economic adviser,” referring to Furman, “agrees with me that the U.S. corporate tax rate needs to be lower … like John McCain wants to.”

In fact, Furman’s position is not at all in line with McCain or other economic conservatives.

Furman’s op-ed went on to praise the tax reform package of Rep. Charlie Rangel, D-NY. That bill, virulently opposed by conservatives, would lower the corporate tax rate but to 30.5%, less than what McCain wants. More importantly, it would fully make up the lost revenue. Furman writes:

Without adding to the deficit burden, this rate reduction would be fully paid for by a series of measures to broaden the corporate tax base to ensure that different forms of investments are taxed at similar rates.

This is why no conservatives supported Rangel’s proposal. It wasn’t another corporate giveaway. Merely an attempt to make the tax code more fair without losing critical revenue.

So the next time you hear some of these factually flimsy conservative talking points, remember: America has the fourth-lowest effective tax rate. And no one on Obama’s economic team embraces McCain’s tax proposals.

UPDATE: Also of note is this Smart Money article (via Democratic Underground’s annabanna), which highlights how corporations avoid paying their American taxes:

You may have heard: U.S. corporations face one of the highest income tax rates in the world, though the mention of “rate” is often enough excised, so that what comes through is the assertion that corporations pay too much in taxes. This is simply untrue if your basis for comparison is the developed world. The truth is that while the 35% corporate income tax rate is high indeed, the creativity and global reach of U.S. corporations make them among the most lightly levied.

Between 2000 and 2005, U.S. corporate taxes amounted to 2.2% of the GDP. The average for the 30 mostly rich member countries of the Organization for Economic Cooperation and Development was 3.4%.

Why the disparity given the high federal rate, which rises to 39% counting state taxes? Part of the answer is that big U.S. companies have become expert at hiding profits in tax havens overseas. And many of the smaller ones simply pass through their income to owners who then report it on their personal returns.

UPDATE 2: Conn responds here.

Comments