6 ms·

Fascinating, because the Wall Street Journal said on February 3 "Total corporate federal taxes paid fell to 12.1% of profits earned from activities within the U

Fascinating, because the Wall Street Journal said on February 3 "Total corporate federal taxes paid fell to 12.1% of profits earned from activities within the U.S. in fiscal 2011, which ended Sept. 30, according to the Congressional Budget Office. That's the lowest level since at least 1972. And well below the 25.6% companies paid on average from 1987 to 2008." [1] So I would argue that the title of the article is false, and in aggregate US corporations have engineered around taxes. Alternatively, you could say that they haven't engineered around anything, and the system is operating as designed, it's just that you can't characterize its behavior by a single number. EDIT: To make the point more explicit, OP says the US is losing business to China because of China's 15% corporate tax rate, and yet that rate is higher than the effective tax rate in the US. Perhaps there's an argument to be made that US taxes really are higher, but the evidence cited in this article isn't it. [1] http://online.wsj.com/article/SB10001424052970204662204577199492233215330.html http://online.wsj.com/article/SB1000142405297020466220457719...

james4k 14y ago
That effective tax rate of 12% is not by design, though. It is due to loopholes that have been thoroughly exploited. A big one being foreign profits are not taxed until it enters the country, so many companies now take their income outside the US and keep it there. So, I would say the tax system was more...hustled around than it was engineered around.
- einhverfr 14y ago
  This should be closed. Corporations should pay US income taxes on foreign retained earnings or other changes in equity.
  - james4k 14y ago
    Yes, but it was meant to prevent double taxation, so unfortunately it's not as simple as just revoking it.
    - einhverfr 14y ago
      My view is just that increases in equity of firms held overseas, where the US firm holds a controlling share (i.e. greater than 50% of voting shares) should be subject to taxes as corporate income taxes. It also neatly avoids the problem of double taxation on the basis of dividend payments. Dividend payments would be deducted for overseas holdings before taxes, meaning that the dividend payment gets taxed as income but so does the post-dividend retained earnings. For overseas holdings of less than a controlling share it seems to me that whatever rules exist for capital gains would apply. If that's not enough offer a tax credit equal to foreign taxes paid. I also think our approach to capital gains needs to be rethought. I understand why taxing capital gains as straight income is undesirable especially where the middle class is involved and where gains off home sales may be a factor. However, I wonder if a better option would be to allow capital gains to be folded into income going forward, amortized for the period of time the asset was held. So if you live in your home for 10 years and sell it at a capital gain of $500000, then you would add $50k to your reported income for the next 10 years following the sale. This would also privilege retirement accounts because at some point the amortization period would exceed life expectancy. This would neatly address the issue of the super-wealthy paying a lower tax rate than the middle class, while continuing to favor retirement-oriented and long-held assets.
adventureful 14y ago
"The U.S. has the second-highest statutory corporate income tax rate in the developed world. Despite anecdotes regarding a few companies that exploit the dubious carve-outs in the tax code to minimize their tax liabilities, the results of 13 unique studies of the effective tax rate on corporate investment across the globe show that the average U.S. effective corporate tax rate, like the statutory rate, is nearly the highest in the world." "The most recent studies show that the average effective corporate tax rate for corporations headquartered in the U.S. is roughly 27 percent, while the average of other nations is about 20 percent. The effective average rate for new investment in the U.S. is roughly 29.8 percent, 7.4 point above worldwide competition." http://taxfoundation.org/article/us-corporations-suffer-high-effective-tax-rates-international-standards http://taxfoundation.org/article/us-corporations-suffer-high...

james4k 14y ago

That effective tax rate of 12% is not by design, though. It is due to loopholes that have been thoroughly exploited. A big one being foreign profits are not taxed until it enters the country, so many companies now take their income outside the US and keep it there. So, I would say the tax system was more...hustled around than it was engineered around.

einhverfr 14y ago
This should be closed. Corporations should pay US income taxes on foreign retained earnings or other changes in equity.
- james4k 14y ago
  Yes, but it was meant to prevent double taxation, so unfortunately it's not as simple as just revoking it.
  - einhverfr 14y ago
    My view is just that increases in equity of firms held overseas, where the US firm holds a controlling share (i.e. greater than 50% of voting shares) should be subject to taxes as corporate income taxes. It also neatly avoids the problem of double taxation on the basis of dividend payments. Dividend payments would be deducted for overseas holdings before taxes, meaning that the dividend payment gets taxed as income but so does the post-dividend retained earnings. For overseas holdings of less than a controlling share it seems to me that whatever rules exist for capital gains would apply. If that's not enough offer a tax credit equal to foreign taxes paid. I also think our approach to capital gains needs to be rethought. I understand why taxing capital gains as straight income is undesirable especially where the middle class is involved and where gains off home sales may be a factor. However, I wonder if a better option would be to allow capital gains to be folded into income going forward, amortized for the period of time the asset was held. So if you live in your home for 10 years and sell it at a capital gain of $500000, then you would add $50k to your reported income for the next 10 years following the sale. This would also privilege retirement accounts because at some point the amortization period would exceed life expectancy. This would neatly address the issue of the super-wealthy paying a lower tax rate than the middle class, while continuing to favor retirement-oriented and long-held assets.

adventureful 14y ago

"The U.S. has the second-highest statutory corporate income tax rate in the developed world. Despite anecdotes regarding a few companies that exploit the dubious carve-outs in the tax code to minimize their tax liabilities, the results of 13 unique studies of the effective tax rate on corporate investment across the globe show that the average U.S. effective corporate tax rate, like the statutory rate, is nearly the highest in the world." "The most recent studies show that the average effective corporate tax rate for corporations headquartered in the U.S. is roughly 27 percent, while the average of other nations is about 20 percent. The effective average rate for new investment in the U.S. is roughly 29.8 percent, 7.4 point above worldwide competition." http://taxfoundation.org/article/us-corporations-suffer-high-effective-tax-rates-international-standards http://taxfoundation.org/article/us-corporations-suffer-high...