Are U.S. Corporate Taxes the Highest or Lowest in the World?

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Are U.S. Corporate Taxes the Highest or Lowest in the World?

Republican legislators are fond of saying the corporate tax rate of the United States is one of the highest in the world. In fact, it’s third highest, at 35 percent. This chokes out corporations’ ability to expand, they say, and discourages businesses from expanding operations into the country. The only problem with this argument is that 35 percent is rarely the rate paid by corporations. Loopholes, offshore holdings, funny loan practices and subsidies allow corporations to regularly pay much less than that.

The United States’ EFFECTIVE corporate tax rate according to the U.S. Government Accountability Office (GAO) is only 13.4 percent, giving us roughly the 108th highest corporate tax rate in the world out of 141 that are measured.

Take the example of News Corporation, which is most famous as the media empire of Rupert Murdoch and parent company of Fox News Channel. By siphoning domestic profits into off-shore tax havens and effectively zeroing out their tax burden, News Corporation often gets a hefty tax refund. Between 2006 and 2010, News Corporation made $10.4 billion in the United States. After taxes, they had made $15.2 billion. Instead of paying any taxes, they funneled profits off-shore, treated the offshore money as a loss and earned $4.8 billion back in tax refunds. This is all entirely legal.

General Electric was heavily criticized for paying no taxes in 2010. This was false, but they did only pay 7.4 percent. Some of this was because of the losses their financial arm would count against taxes. The questionable business ethics that got them there aside, that’s fine, the United States allows write-offs for business losses. So let’s disregard their financial arm and its loss credit, and isolate the rest of the company. Their technology, media and production arms only paid an EFFECTIVE tax rate of 16.8 percent, not 35 percent.

The United States receives only 1.6 percent of its Gross Domestic Product from corporate taxes. This is close to dead last among the 27 wealthy nations measured by the OECD (Organisation for Economic and Co-Operative Development). In fact, corporate taxes amount to less than 6 percent of our total tax haul.

The EFFECTIVE corporate tax rate is at the lowest it’s been since the 1930s, a decade not exactly known for its business growth and high standards of living. This comes at a time when corporate profits as a percentage of GDP are at the highest they’ve ever been. The only time they’ve ever approached this rate is right before the Great Depression. Employee compensation as a percentage of GDP is at the lowest rate since World War 2, and that was because of…well, World War 2.

Using legal international subsidiaries, Microsoft avoided paying $7 billion in corporate taxes between 2009 and 2012. As in everything, Apple did what Microsoft did only better: they avoided paying $26 billion in corporate taxes in that same time frame. All a corporation has to do is have their subsidiaries keep loaning the money to each other until taxes come due – that money remains untaxable.

It was reported earlier this year that Walmart keeps $76 billion of untaxed domestic profits in offshore tax havens. That’s $26.6 billion in taxes the United States isn’t seeing.

Consider the brilliant move Facebook founder Mark Zuckerberg just made. News media breathlessly reported that he was donating a whopping $45 billion to charity. Yet this is not what actually happened. Zuckerberg did not set up a charity or a non-profit. He established a limited liability company (LLC). This LLC can lobby politicians and continue investing as Zuckerberg pleases. It can even invest in ventures that increase Facebook’s profits.

Furthermore, Zuckerberg’s LLC will face no transparency requirement, as there would be for a non-profit. The sale of stock would require a capital gains tax. A straight monetary donation would create a modest tax break. But if Zuckerberg donates appreciated shares in Facebook to charity, he would create a tax deduction at the market value of the stock without triggering any additional tax.

What this means, in essence, is he has created a surge of public relations approval that will increase the value of that stock. That stock can then be donated at an inflated price that will minimize the tax Zuckerberg has to pay. As time continues increasing the value of the stock, he can donate enough yearly to zero out his tax burden. He is, in essence, creating money from nothing that will eliminate his tax burden on much of the future profits he makes. He also faces minimal penalties should he choose to withdraw that money back out.

Should corporations be taxed at all on their profits? Perhaps not. That just means the roads, bridges, security, emergency services, public power grids, public telecommunications, the FAA, etc. all belong exclusively to citizen taxpayers, and that corporations shouldn’t get to use any of these publicly funded necessities of business. Unless, that is, they’d like to pay a surcharge. The United States, especially for the public infrastructure corporations enjoy, does not have one of the highest EFFECTIVE corporate tax rates in the world. It has one of the lowest.

Do you favor making corporations pay more taxes? Do you think they’ve been taking advantage of American tax codes?




Gabriel Valdez
Gabriel Valdez
Gabriel is a movie critic who's been a campaign manager in Oregon, an investigative reporter in Texas, and a film producer in Massachusetts. His writing was named best North American criticism of 2014 by the Local Media Association. He's assembled a band of writers who focus on social issues in film. They have a home base.