U.S. Corporate Income Taxes Lowest In OECD As Share of GDP

The United States is the OECD country with the lowest corporate income taxes as a share of GDP (1.8%) in 2008, despite the fact that it has one of the highest marginal corporate income tax rates.  The paradox is a result of the fact that there are more generous tax credits and tax deductions in the American corporate income tax than in foreign corporate income taxes.  U.S. law generally permits corporations to take tax deductions for capital purchases much more quickly than over the useful life of the purchase and has a generous deduction for research and development expenditures, for example.  The OECD average is almost twice as much as the tax burden in the United States. 

Critics of the importance of this ranking argue that this is mostly a result of shrinking corporate profits following the financial crisis, a crisis that hit the U.S. harder than it did big businesses in other countries.  But, it is hard to argue that the global economy didn't itself take a global hit in 2008.

Another complication in comparing corporate income taxes internationally is that publicly held U.S. corporations generally pay corporate income taxes, then distribute a large share of the after tax profits as dividends and pay individual income taxes on the distributed profits (albeit at a reduced top marginal rate).  In contrast, most countries tax distributed profits either only at the corporate level or only at the individual level.  Thus, the total taxation of corporate income is really somewhat higher than it seems looking at corporate income taxes alone, relative to other countries.  (The magnitude of this effect is small enough, however, that it would still leave the U.S. near the bottom of the OECD and very close to Germany.)  

On the other hand, many closely held entities that pay no corporate level tax in the United States because they are limited liability companies taxed as partnerships or S corporations would pay significant corporate level tax (which would be charged against individual level taxes) in much of the world.  If all of the individual income tax attributable to closely held limited liability entities in the United States were treated as corporate income tax revenue rather than individual income tax revenue in international comparisons, the size of the corporate income tax revenue flow would be significantly higher.

The bottom line, of course, is that it is easier to compare overall tax burdens between countries than it is to compare the burdens of particular taxes, because structural features of different tax regimes can make it appear that there are big differences between tax regimes for accounting purposes that have little economic relevance.

Still, none of these factors are sufficient to support the assertion that U.S. corporate income tax burdens make the U.S. uncompetitive in international business and cost it jobs, which is essentially the argument made by those arguing for lower marginal corporate income tax rates in the United States. Indeed, U.S. international competitiveness seems to be greater for publicly held corporations that are subject to these tax rates than for closely held businesses that have more favorable tax treatment. The U.S. small and medium sized business sector is notably weaker than its foreign competition, while its big business sector is fairly robust.