With Corporate Taxes, Less Is More

There is no shortage of alarmism when it comes to corporate taxes. Earlier this year, Mitt Romney said that the U.S. tax code “looks like it was devised by our worst enemy to tie us in knots.” A more recent memo drafted by the Senate Republican Caucus claimed that the “corporate income tax harms workers, consumers, job creation, investment, and innovation” (you have to wonder what else exactly is left).

These statements are enough to scare anyone into thinking that the entire U.S. economy will crumble if corporate tax rates aren’t slashed tomorrow. But, as Republicans often claim, are U.S. corporate tax rates really among the highest in the world? And are workers really so dependent on protecting corporate profits? More important, is there any reason the U.S. shouldn’t raise more revenues from corporations during this time of great fiscal need? 

Falling Corporate Taxes

Those pushing for corporate tax cuts commonly cite the fact that, as of April 1, 2012, the U.S. officially has the highest corporate income tax rate in the world. When you add together federal, state, and local taxes, the combined rate shakes out at 39.2 percent. 

Of course, nobody really pays that: A widely-cited study last fall revealed that the 280 most profitable corporations in the U.S. collectively paid an average rate of 18.5 percent from 2008-2010. Seventy-eight of these corporations actually paid zero in taxes during one of these years. The disparity between the official, statutory corporate tax rate and the effective rate is due primarily to the countless deductions and exemptions that corporate lobbyists have successfully woven into the tax code over the years.

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