What is the corporate tax rate?

Date posted: October 18, 2011

Some say that the United States has the world’s highest tax rate on corporate income, but others say that the official corporate tax rate is misleading because it doesn’t account for the numerous exemptions and credits corporations can take.  And N.C. State University economist Mike Walden says they’re both right.

“We do have the highest official rate in the world, corporate tax rate.  But we also have a lot of deductions and exemptions and credits that corporations can take that take that official corporate tax rate and reduce it. And, therefore, we call that reduced rate the effective tax rate.

“So, what is the effective tax rate?  Well, we have a … brand new study from the non-profit Tax Foundation that tried to answer this. They pour through the tax code, and they pour through the tax returns from corporations. And what they’ve found is that, yes, the … official corporate income tax rate in the U.S. is 35 percent — highest in the world.

“But if you take account of the fact that U.S. corporations can take a lot of these deductions and exemptions and credits, that reduces the credit rate to 23 percent. They also found that that effective rate has actually been falling in recent years.

“They further found that the effective rate does vary by size of the corporation. It’s lowest for both the very smallest corporation and the very largest corporation by asset size.

“And they further found that that effective rate does vary by industry.  It tends to be lowest for firms that are in the manufacturing sector and its highest for firms in health care and education.”

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