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Most small to medium corporations are organized as pass through entities so they don't have to pay the corporate tax rate. Also parking profits in different co

Most small to medium corporations are organized as pass through entities so they don't have to pay the corporate tax rate. Also parking profits in different companies doesn't affect the average or marginal effective tax rates because effective and average tax rates are only computed using the profit. And parking cash in offshore subsidiaries doesn't get recorded as profit for the U.S. corporation. You've argued that effective/average rates depend on the type company. But the amount you pay in taxes depends on what type of company too. So this is a feature not a bug. For instance how many buildings do you own, how much debt you have, how much and what types of equipment do you own. All of these things affect how much you pay in taxes so of course they affect average and effect tax rates but not nominal rates. My point is corporations care more about average and effective tax rates because they are more representative of what they will pay than nominal tax rates. Here is the paper which lists the methodology the CBO used. https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52419-internationaltaxratecomp.pdf https://www.cbo.gov/system/files/115th-congress-2017-2018/re...

AnthonyMouse 9y ago
> Most small to medium corporations are organized as pass through entities so they don't have to pay the corporate tax rate. In which case they can't defer paying personal income tax to much the same effect. > Also parking profits in different companies doesn't affect the average or marginal effective tax rates because effective and average tax rates are only computed using the profit. They reduce their profits in the higher tax jurisdiction by paying more for products or services from a subsidiary in a lower tax jurisdiction, which lowers their effective tax rate because the cost paid to the foreign subsidiary is a deductible expense which reduces their tax burden. > You've argued that effective/average rates depend on the type company. But the amount you pay in taxes depends on what type of company too. So this is a feature not a bug. It is a bug if you are trying to compare effective tax rates between countries that have different types of companies, because you end up comparing company types instead of tax codes. > My point is corporations care more about average and effective tax rates because they are more representative of what they will pay than nominal tax rates. They obviously care about their own effective tax rate, but that may have little or nothing to do with what companies in other lines of business that represent the country's average are doing. Moreover, they care about all the details of the tax code, and make decisions based on it. High property taxes cause companies to avoid/minimize owning real property, high income/profit taxes cause companies to avoid reporting profits in that country, high consumption taxes cause companies to conserve resources or acquire them offshore, etc.
- JamesBarney 9y ago
  Do you think their tax rate will be closer to the average tax rate or the statutory tax rate?
  - AnthonyMouse 9y ago
    > Do you think their tax rate will be closer to the average tax rate or the statutory tax rate? They are independent variables. The statutory tax rate could be 35% and the average 15% and the company could pay 34% or 3% depending on the nature of their business.

AnthonyMouse 9y ago

> Most small to medium corporations are organized as pass through entities so they don't have to pay the corporate tax rate. In which case they can't defer paying personal income tax to much the same effect. > Also parking profits in different companies doesn't affect the average or marginal effective tax rates because effective and average tax rates are only computed using the profit. They reduce their profits in the higher tax jurisdiction by paying more for products or services from a subsidiary in a lower tax jurisdiction, which lowers their effective tax rate because the cost paid to the foreign subsidiary is a deductible expense which reduces their tax burden. > You've argued that effective/average rates depend on the type company. But the amount you pay in taxes depends on what type of company too. So this is a feature not a bug. It is a bug if you are trying to compare effective tax rates between countries that have different types of companies, because you end up comparing company types instead of tax codes. > My point is corporations care more about average and effective tax rates because they are more representative of what they will pay than nominal tax rates. They obviously care about their own effective tax rate, but that may have little or nothing to do with what companies in other lines of business that represent the country's average are doing. Moreover, they care about all the details of the tax code, and make decisions based on it. High property taxes cause companies to avoid/minimize owning real property, high income/profit taxes cause companies to avoid reporting profits in that country, high consumption taxes cause companies to conserve resources or acquire them offshore, etc.

JamesBarney 9y ago
Do you think their tax rate will be closer to the average tax rate or the statutory tax rate?
- AnthonyMouse 9y ago
  > Do you think their tax rate will be closer to the average tax rate or the statutory tax rate? They are independent variables. The statutory tax rate could be 35% and the average 15% and the company could pay 34% or 3% depending on the nature of their business.