WSJ ignored effective tax rate in claiming U.S. corporate tax rate "is higher than in all of Europe"
SUMMARY: The Wall Street Journal misleadingly claimed in an editorial that the U.S. corporate tax rate "is higher than in all of Europe." In fact, according to the Government Accountability Office, "Statutory tax rates do not provide a complete measure of the burden that a tax system imposes on business income." Additionally, World Bank and GAO data indicate that the U.S. effective corporate tax rate is lower than 35 percent and lower than several developed -- including some European -- economies.
In a January 30 editorial, The Wall Street Journal asserted, "Democrats object to cutting the U.S. 35 percent corporate tax rate -- which is higher than in all of Europe." But the Journal's comparison of the U.S. statutory corporate tax rate to the statutory rates of other nations is misleading. According to an August 2008 report by the Government Accountability Office (GAO), "Statutory tax rates do not provide a complete measure of the burden that a tax system imposes on business income because many other aspects of the system, such as exemptions, deferrals, tax credits, and other forms of incentives, also determine the amount of tax a business ultimately pays on its income." Indeed, World Bank and GAO data indicate that the U.S. effective corporate tax rate is lower than 35 percent and lower than several developed -- including some European -- economies.
In its August 2008 report, the GAO estimated that "[t]he average U.S. effective tax rate on the domestic income of large corporations with positive domestic income in 2004 was an estimated 25.2 percent." Further, in its Paying Taxes 2009 publication, based on its 2009 Doing Business report, the World Bank-International Finance Corporation estimated that the United States has a lower effective rate of current corporate tax than several developed economies, including Germany and Italy. Moreover, in June 2007, the Treasury Department concluded: "If special provisions were eliminated, the top corporate tax rate could be lowered to 27 percent or more than 40 percent expensing could be provided to all businesses for new the cost of tangible investments, and the tax system would produce the same level of revenue."
In Paying Taxes 2009: The Global Picture, the World Bank noted that "reducing the statutory rate of corporate income tax has been the most popular government tax reform in the period. However in most of the economies, the case study company does not pay corporate income tax at the statutory rate on its profit before tax, since the tax rules require adjustments to be made to this in order to calculate taxable profits." The World Bank continued:
A common example is to substitute tax depreciation for commercial amortisation of assets.
The effective rate of current corporate income tax can be defined as the actual rate of corporate income tax paid as a percentage of profit before tax (see Appendix 2 for an explanation of the calculation). Figure 2.7 compares this effective rate with the statutory rate of corporate income tax for the G8 and BRIC (Brazil, Russia, India and China) economies, and shows that the two are often not the same.
The key point to recognise is that it is not simply the statutory rate of corporate income tax that is important here, but also the effective tax rate for current corporate income tax, taking into account all the additions and deductions to profit before tax that tax rules may require.
The report included the following figure showing that the United States has a lower effective rate of current corporate tax than several G8 and BRIC countries:
In a January 29 Wall Street Journal op-ed, Rush Limbaugh similarly claimed that the U.S. corporate tax rate is "at 35%, among the highest of all industrialized nations."
From the Wall Street Journal's January 30 editorial:
So let's see: Democrats object to cutting the U.S. 35% corporate tax rate -- which is higher than in all of Europe, undermines economic growth and discourages job creation -- for all companies on grounds that it favors the rich and powerful. But Democrats will carve out tax loopholes for businesses they like and that write them campaign checks.
From Limbaugh's January 29 op-ed:
I say, cut the U.S. corporate tax rate -- at 35%, among the highest of all industrialized nations -- in half. Suspend the capital gains tax for a year to incentivize new investment, after which it would be reimposed at 10%. Then get out of the way! Once Wall Street starts ticking up 500 points a day, the rest of the private sector will follow. There's no reason to tell the American people their future is bleak. There's no reason, as the administration is doing, to depress their hopes. There's no reason to insist that recovery can't happen quickly, because it can.
What I find interesting is that none of the pundits are even asking whether corporate tax cuts will do anything to help the economy; they just accept it at face value... no question.... no debate. In fact, they scarcely even mention the tax cut portion of the bill.
Yet, the smaller amounts of money proposed to help the poor and recently unemployed are being given a colonoscopy.
Can somebody explain why the "Liberal Media" would behave this way?
Good questions nerzog. I know of a tax expert that can fix the situation though!
Tax expert waiting in the wings!
Well, it gives Republicans something to whine about.
Times are tough...we take what we can get!
We also have this little tid bit, which says that there are a lot of corporations out there that pay 0 income tax.
http://www.nytimes.com/2008/08/13/business/13tax.html
From the link above, 2 out of 3 didn't pay taxes from 1998-2005.
I always heard companies are "moving out of Dodge " because of cheaper labor and unions, not corporate tax rates ?
That was a little tid bit...literally!
Looks like Tommy Boy fell on his sword and dropped out, or hopefully for your sake, Barry wised up to the game and sent him packing.
I noticed the other tax cheat fell on her sword also. I do empathize with Tommy boy and that other girl though. They understand that THEY know better what to do with their money than the government.
Too bad they couldn't find their way to help out us little folks with our taxes when they held the reins of power.
Maybe Tboone will help you out, seeing that you're kin and all.
It. would. do. nothing.
Corporate taxes are only paid by companieos that MAKE A PROFIT.
SO... Lowering the rate would do ABSOLUTLEY NOTHING to help the banks, the auto industrty, or any number of other companies and/or businesses that are just hanging on or in the red.
And to anyone who suggest that greater PROFITS in one company somehow benefits other companies (as potential customers, or in some other Keynsian way...) I say: BOLLOCKS!
PROFIT is whats left after ALL SALARIES ARE PAID, ALL RAW MATERIALS PURHCASED, ALL VALUE ADDED, ALL EQUIPMENT DEPRECIATED, etc... It's what's left AFTER ALL THAT IS ALREADY DONE. Taxes then are paid out of THAT.
So all you've increased is what you have to give to the shareholders. There's nothing wrong with that, but it WILL NOT create jobs (that cost of that comes out before taxes are paid) it will not truly create investment (again - equipment purchases, R%&D, etc... are all capitalized BEFORE profit is calculated and texes paid.) The ONLY beneift is to the shareholder and even then only if the comapny is doing well - MAKING A PROFIT.
It can't move a company from the red to the black. That's a mathematic impossibility.
To say otherwise is to mislead, in order to serve your own self interest at the expense of the people doing all the work. Or at least those who would be, if they could get a job. But the corporate tax rate has ABSOLUTLEY NOTHING with the REVENUE that pays their salaries.
PROFIT is taxed, not REVENUE.
Good points, NGEddie. That's reality, unfortunately, it's not what the average American is led to believe by the MSM.
This is similar to their pleas for sympathy for the super-wealthy, where they use nominal tax rates based on gross income to give the impression that people are actually paying these amounts. You'll notice a lot of "so & so is in an X% tax bracket", not "so & so is paying this much". It's technically true, but ignores the fact that those in the highest brackets have very good accountants who are very good at getting them well out of that zone.
I was talking to a speech-therapist friend of mine before the election. She really liked Obama but was afraid of one thing: a 55% tax rate if her household made $150K. (Which they would do, with both of their salaries.) She's like - i we each make $80K I may as well not work!
Now... putting aside that Obama never proposed even a marginal 55% tax rate for those making $150K a year, she had NO IDEA how the MARGINAL tax rate worked! That is they made $150,001, that 55% would only apply to the last dollar. AND SHE OWNS HER OWN PRIVATE SPEECH THERAPIST PRACTICE! SHE'S (technically) a BUSINESSWOMAN!!!
And no, she's not stupid. Far from it, she's one of the most intelligent people I know. Has common sense to spare as well. But it does serve to show just how badly informed the MSM has kept the public. I really wish some of these "journalists" would at least occasionally call these bastards out on their BS.
You're right, of course, but no one in the Media is even talking about that... at least none that I've heard.
Yesterday, Macy's laid off several thousand workers, as did Starbucks. Would lower corporate tax rates have prevented that? I don't see how.
And don't forget BOEING, a major employer and DOD contractor, that actually influences the numbers you see daily at DJIA is planning to lay off 10000 employees.
Nice points. Unfortunately, everything you said will be ignored by Republicans and the MSM.
Is it even possible to count the number of times that this bogus claim is made by right-wingers? Let us all also not forget how many U.S. companies use loopholes to avoid paying most taxes anyway.
Why do right-wing professional liars get so worked up over the corporate tax rate when 60% of American-controlled corporations don't pay them anyway?
pete592, AMEN to that. The RIGHT WING PROFESSIONAL LIARS get worked up because their corporat sponsers are PAYING THEM to.
Taxes are complicated so it's easy to be confused. It's also easy to intentionally mislead.
More important than the corporate income tax rate is the total corporate tax rate, which also includes labor tax paid by companies and other taxes. Total tax includes both national and local taxes. Why you have to pay the tax is not as imprtant as there mere fact that it has to be paid.
The World Bank found that the United States has a lower total corporate tax rate than our closest trading partners (Canada and Mexico), most of Europe (France, Germany, Belgium, Austria, Italy, Greece, Spain, Portugal, Sweden, Finland, Russia, Hungary, Ukraine, and many others in Eastern Europe), Australia, and the big Asian economies (Japan, China, India).
On the other hand, the more notable countries listed as having lower total corporate tax rates than we have are UK, Iceland, Ireland, Netherlands, Denmark, Norway, Switzerland, Poland, Israel, South Korea, Taiwan, Hong Kong, and New Zealand.
Looking over the lists above, I would say we do quite well against the competition in keeping corporate taxes low.
I don't think MMFA's bringing up the effective tax rate negates any of the arguments made by Republicans or Rush Limbaugh.
The corporate tax rate is 35%. That is not misleading. If the effective rate is somewhat less, and it is unclear through MMFA how much less, as they only cherry pick large corporations for their 25% figure, the argument for reducing corporate taxes still holds.
The corporation pays taxes on the profits and then those who get dividends from those profits also pay income taxes on that same money.
Lowering taxes would increase money from profitable coporations and trickle down to the shareholder and mutual fund holder, putting more money in their pockets to either spend or reinvest.
To give you an idea, take a look at these statistics:
Of the $4.6 trillion in mutual fund retirement assets held in IRAs, 401(k) plans, and other retirement accounts at year-end 2007, $3.1 trillion, or 68 percent, were invested in domestic or foreign equity funds (Figure 7.16). Domestic equity funds alone constituted about $2.4 trillion, or 52 percent, of mutual fund retirement assets. By comparison, about 54 percent of overall fund industry assets—including retirement and nonretirement accounts—were invested in domestic and foreign equity funds at year-end 2007.
http://www.icifactbook.org/fb_sec7.html
So imho, cutting corporate taxes is much more efficient than tax rebates with the added beneift that the government doesn't have to borrow money, (increasing the national debt,) in order to stimulate the economy by simply passing out checks. Cutting the coporate taxes make the roi better for those corporations which in turn drives up the stock prices... helping everyones retirement plans.
Only 4 out of every 10 companies pay corporate taxes, and they're still paying too much?
So imho, cutting corporate taxes is much more efficient than tax rebates with the added beneift that the government doesn't have to borrow money, (increasing the national debt,) - AA
Right, because as everyone knows, tax cuts pay for themselves.
AA,
The only thing that has trickled down from 30 years of conservative drift in this country is the complete devastation of our economy, and the near destruction of the middle class.
"...which in turn drives up stock prices...helping everyone's retirement plan."
50 percent of Americans have no retirement plan at all except social security. Trickle Down economics deserves to be put in history's dustbin.
If half your social security money had been invested in common stocks beginning just a few years ago, it would have multiplied at least several times by now, in spite of recent losses.
By contrast, the half "invested" in the Social Security "trust fund" (howls of laughter) would be...lessee, what's the Present Value of a dollar spent 10 years ago?...funny, my Present Value tables don't consider such an assinine postulation.
I'm thinking it was MIDDLE CLASS VOTES that kept Ponzi Security in place, at the expense of a real retirement plan.
Your weak attempt to blame someone else is classic .
Groan. You really are using stupid right wing talking points about social security, which is not an investment scheme. I'd appreciate it if you would read about how Reagan/Greenspan hiked up social security taxes to cover their behinds after their tax cut for the wealthy caused the government to go into massive debt.
They promised that this tax hike would be used just for social security. Guess what?
AA,
Who is more likely to spend the (let's say $500) tax break. Some one who makes $40,000 per year or someone with excess money to invest.
If they are already investing, they are going to either save it or invest some more. Neither one of those things is good for the economy in the near term.
Now for your Corporate Welfare plea, how do can anyone advocate investing right now. All of those 401(k) plans have lost tons of money depleting the retirement accounts of most people.
Also, show me the data that reveals the "trickle-down" effect and where this has occured at any time in history.
Skeptical,
For some reason it is impossible....I mean IMPOSSIBLE to persuade folks lik AA to see reason when it comes to your point. What I have always found so amusing is how the GOP has somehow fooled many hard working Americans into actually voting for them, considering the GOP and its mouthpieces constantly spout the fallacy that most Americans don't pay taxes. How can a person who gets a income tax refund vote Republican? Why would you vote for a party who holds you in such disdain? Oh, I forgot, the other side is godless baby killers who want to make everyone gay..... and did I mention Obama is a Muslim?
achris,
Stockman was at one time, my congressman. So I am familiar with him and his disenfranchisement when he was at OMB. However I do not do other peoples homework. If you have a point to make and a Stockman quote to back it up, feel free to post it.
However, that being said, nice rant. Thanks for the GOP fooled everyone who voted for them... No need to think things through when you already have the answers. hope you are enjoying the kool aid. :-)
AA,
It would really be nice if you guys on the right could make an argument without utilizing petty insults you learn from right wing talk radio. I swear, "kool aid???" I'm guessing that your rebuttal centers aroudnt eh assertion that I haven't thought things through. O.K. let us compare our arguments. Show me one liberal talking head from which you can even remotely indicate that I am regurgitating my arguments from. On the other hand, one can tune into any right wing radio show and hear the accusation of "kool aid" drinkers daily. So tell me again, who is it that hasn't thought their argument through?
Furthermore, I didn't ask you to do anyone else's homework. It was an assignment to you. Simple logic would indicate that I already knew the answer and therefore felt it incumbent to ensure that you informed yourself. Anyway, if you are aware of Stockman and his "disenfranchisment" (as you so conveniently call it) then it seems you should have a hard time selling trickle down theory considering one of the chief policy drivers of the policy has since told everyone the truth. Now perhpas you can show how Stockman is wrong.
AA,
Here is a homework assignment for you. Find out what David Stockman finally said about tax cuts for the wealthy and what "trickle down" really means. Remember that Stockman was essentially the one who sold supply side economics as "trickle down" so people would buy it. He was also budget director for Reagan and was instrumental in ensuring supply side became policy. I think you will find his revelations amazing concerning the "truth" about this system.
The fact is supply side economics doesn't work. It was tried in the late 1800's and it didn't work then. This isn't to say that tax cuts aren't stimulating to the economy. Keynsians have always held that tax cuts are stimulating, but the difference is that- they correctly point out that it isn't tax cuts for a specific demographic which works, but rather tax cuts for the people who take their paychecks and spend them every week. I mean really, didn't the failures of the Reagan and Bush years teach you guys anything?
Aachrispage6992 , Evidently the BUSH years didn't teach AA anything because he is still spittingout GOP talkingpoints. I dont think hee'll ever see the light.
The problem is that they won't admit any failures. Hadn't you heard? This is the "Obama Recession".
"those who get dividends from those profits also pay income taxes on that same money."
Not to be nitpicky, but you're referring to the capital gains tax, not the income tax. Anyway, the capital gains tax rate was slashed to 15% back in 2003, and here we are. Worked like a charm, didn't it?
It had the intended effect, but it didn't have the advertised effect. You can say the same thing for pretty much every aspect of the Reaga-Clinto-Bushanomics that we've been plagued with for almost 30 years.
Pete,
Like so many others here, you are implying that cutting the capital gains tax has somehow led to this economic mess.
These are two different issues. A basic economic truism is that the less an individual is taxed, the more money available to each spending, saving, and/or investment.
When government encourages lending to high risk borrowers, when the interest rates go up and the default rate also goes up, the artificial boom quickly becomes a bust. Government, community activist organizations, and lenders all share in that blame. But the current economic downturn has nothing to do with capital gains taxes lowered to 15%.
I was stupidly and horribly wrong when I said that you were talking about the capital gains tax. I'm cramming my foot in my mouth on that one.
"Like so many others here, you are implying that cutting the capital gains tax has somehow led to this economic mess. "
No, I was implying that it wasn't the boon to the economy that right-wingers insist that it is, just like every tax cut that they try to sell us, although they may create jobs in places like China, India, Mexico and Korea.
To examine the efficacy of tax cuts, just look at our current economy. Mr Bush told us that the answer to every problem was to cut taxes and the benefits would trickle down (per Reagan) to all of us. Republicans are still proposing more massive tax cuts.
Cutting corporate taxes would only exacerbate our current huge deficit. Bush doubled the debt in his 8 years. Reagan, Bush I and Bush II (the tax cutters) have accounted for 80% of our TOTAL national debt. Cutting any taxes while running a budget deficit simply creates debt to be paid by future generations. Would you run up a huge balance on a credit card and leave it to be paid with interest by your great grandchildren?
The value of the S&P 500 where most people have their retirement money has actually gone down from 10 years ago. I lost enough directly without losing Social Security there also.
From 2004 through 2007, American corporations bought back $1.4 TRILLION of their own stock. This means that they had excess cash that could have been invested in plant, equipment, R&D, personnel hiring and training, marketing or cutting prices. They elected to remove that cash from the economy. If all corporate taxes were eliminated, the amount would be little more (they paid $1.7 trillion) than the corporate stock buyback total.
The comment that reducing corporate taxes would not increase the national debt is just plain stupid.
The worst economy of most of our lifetimes conclusively proves that the republican policies of "mis"regulation, tax cutting, cheap money and corporate welfare have been destructive to our country.
I don't think that the current proposed Obama economic rescue plan will work well.
recovering,
You are mistaken that the buyback of stock eliminated the money. After all, it didn't disapear now did it? No, the money was paid to whoever sold the stock.
Buying back stock boosts stock prices and increases dividends per share. Not a bad thing when you think about it.
The money expended for buybacks was dispersed in a way that it could not produce further economic activity. The sellers of the stock could have sold to other individuals. If you look at the records, stock prices are not often affected by stock buybacks nor are dividends necessarily increased. Also, it does not increase profits, it simply spreads them over fewer recipients. As I said, the company, the public and the economy would benefit more if the company reinvested the money in the business. duh
The major point is that companies spent $1.4 trillion for their own stock. Why then, is a tax reduction needed to stimulate economic growth when they could have used the money they already had?
Once the company pays out the purchase money, there is no further economic stimulus from it.
recovering,
The problem is not the tax cuts but the out of control spending.
Yes, we are in a down market, so this year's 10 year average might look bad. (I have not found it to get the exact % decline.)
If you look at the S&P 10 year averages up through 2007 going backyou'll see it has peformed from good to very good.
For various 10 year periods, the average % change are as below:
My suggestion is to start moving money out of the stock market and into other less volitile investments when you are about 10 years away from retirement. If you have longer to go, my suggestion is that now would be a good time to invest and by using dollar-cost-averaging, put yourself in a good position when the market recovers, (which it always has.)
I personally feel that growing the economy is much higher goal than growing the government.
ps. I never said reducing the coporate tax would not increase the national debt. Go back an look again. My comment was a comparison between reducing corporate taxes and handing out rebate checks.
The "worst economy" is not because of tax-cutting, cheap money and corporate welfare. The economy is in a shambles because of the mistakes that led to the housing industry collapse and the domino effect on banking and wall street.
As to out of control spending, I pointed out that recent republican presidents have accounted for at least 80% of our total national debt.
The last ten years of the S&P 500 is my concern as I am 69. I have less in my retirement funds than when I was 57.
Reducing corporate taxes will absolutely increase the national debt by the exact amount of the reduction. Think about it. There is zero difference between a rebate check of $200 and a tax cut of $200 on the deficit.
Banking and well street facilitated the housing industry collapse. They were not domino victims of anything. Banks solicited and funded bad loans. Wall street bought the paper from the banks. They made the decisions to do those things. Alan Greenspan said that he was mistaken in believing that financial institutions could regulate themselves.
I don't want to grow the government in the way that Bush did, increasing our national debt by $5.7 trillion in the process.
The Europeans pay more taxes than we do here in the United States...that's just a fact. However THEY GET SOMETHING FOR IT. Here is the US we toss our trillions down a big fat hole and people like Limbaugh blame the poor.
Limbaugh should hope society doesnt collapse...because he will never survive the aftermath.
Limbaugh is a big fat hole, no question, and dittoheads keep pouring trillions of dollars away because they listen to him. He'll indeed have a hard time surviving on hot air alone.