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Beyond the Headlines: What Corporations Really Pay in Income Taxes

Beyond the Headlines: What Corporations Really Pay in Income Taxes. Presentation by Scott Hodge & Will McBride 202-464-6200 www.TaxFoundation.org. 1. U.S. Continues to Fall Behind by Standing Still. But Nobody Pays That U.S . Business Has High Tax Rates but Pays Less --New York Times.

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Beyond the Headlines: What Corporations Really Pay in Income Taxes

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  1. Beyond the Headlines: What Corporations Really Pay in Income Taxes Presentation by Scott Hodge & Will McBride 202-464-6200 www.TaxFoundation.org 1

  2. U.S. Continues to Fall Behind by Standing Still

  3. But Nobody Pays That U.S. Business Has High Tax Rates but Pays Less--New York Times

  4. Two New Tax Foundation Reports on Corporate Effective Tax Rates “Beyond the Headlines: What Do Corporations Pay in Income Tax?” – William McBride • IRS data shows that largest U.S. companies pay 68% of all corporate income taxes. • IRS data shows that corporate ETR has averaged 26% since 1994. • Including foreign income taxes, total ETR is close to statutory rate of 35%. “U.S. Corporations Suffer High Effective Tax Rates by International Standards” – Phillip Dittmer • Survey of 13 most recent studies finds that ETR in the U.S. is high globally by any measure.

  5. 1,900 Largest Companies pay 68% of All Corporate Income Taxes Source: IRS; Doesn’t add up to 100% due to losses

  6. Corporate Income and Taxes Fluctuate with the Economy Source: IRS

  7. Effective Corporate Tax Rate Has Averaged 26% Since 1994

  8. Contribution of Various Credits in Reducing Effective Tax Rate, 2008

  9. Including Foreign Taxes and Foreign Income Foreign tax credit is a credit for almost all foreign income taxes paid. Foreign tax credit in 2008 ≈ $100 billion. Including foreign taxes paid, as well as foreign income (both deferred and non-deferred) the overall effective tax rate on the worldwide income of U.S. corporations is about 33%. Very close to the statutory rate of 35%.

  10. Contribution of Various Credits in Reducing Effective Tax Rate for a Sample of Industries, 2008

  11. How does the U.S. Compare Internationally? • New Tax Foundation Study surveys 13 recent academic studies on effective tax rates, finds that: • U.S. consistently ranks among the top five highest effective tax rates on multiple measures. • Only nation with a higher effective tax rate in each study is Japan.

  12. Three Methodologies, One Answer: U.S. Effective Rate is Nearly the Highest in the World • Sample of financial reports (4 studies) • ETR = 27% in the U.S. versus 19.9% elsewhere. • Hypothetical firm (5 studies) • EATR = 29.8% in the U.S. versus 22.3% elsewhere. • Average tax cost for start to finish profitable investment over its life. • Hypothetical firm (4 studies) • EMTR = 26.3% in the U.S. versus 18.2% elsewhere. • Tax cost on the final dollar of a break even investment over its life.

  13. Bottom Line • U.S. federal corporate effective tax rate (ETR) is about 26%. • Overall ETR on worldwide income of U.S. corporations is 33%, inclusive of foreign taxes paid on foreign income. • Does not vary much across industry or company size, when foreign taxes are accounted for. • All recent studies find the U.S. corporate ETR is nearly the highest in the world.

  14. For More Information Contact: Scott Hodge or Will McBride 202-464-6200 www.TaxFoundation.org 24

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