U.S. Corporate Taxes -- Yes, They Really Are That Bad

As corporate tax reform takes center stage in Washington and Tim Geithner prepares for his meeting with leading CFOs on Friday, discussions of the United States' tax competitiveness seem stuck around one number: the statutory corporate income tax rate of 35 percent. This rate is, as the business press has been reminding us ad nauseam, the second highest among the nations in the Organization for Economic Cooperation and Development (after Japan – which, however, plans to slash five percentage points off its corporate rate in April, leaving the U.S. with the embarrassment of the highest combined state/national rate in the OECD).

The problem with this focus is that it doesn't give the full picture of the country's tax competitiveness. What about tax credits and subsidies? Income tax is only part of the story; what about payroll and property taxes? What about (increasingly important) non-OECD competitors? Compliance costs? Factor in all these and you might be tempted to argue that the U.S. is actually a fairly friendly place to do business.

But you'd be wrong.

A new study from PricewaterhouseCoopers (available here) looks at the overall tax burden in 183 countries from the standpoint of a hypothetical midsize domestic company. PwC takes into account the total effective tax rate (including labor, consumption, and property taxes as well as revenue taxes) and the compliance burden, as indicated by the number of tax payments per year and the time needed to comply.

The United States' overall “ease of paying taxes” rank is an unimpressive 62.

The problem is not so much compliance issues; the country scored better than average in terms of the number of tax payments and time to comply.

No, the big problem is the United States' high total tax rate (TTR) – around 47 percent. If you look just at TTR, the U.S. ranks a dismal 124 among the countries surveyed, firmly inside the worst one-third and alongside Niger (ranked 122), the Russian Federation (123), Greece (125), and Yemen (126).

There's plenty of ammunition here for corporate taxpayers arguing the case for a reduction in the total tax burden. “When considering tax reform, it is important that governments take into account all of the taxes that companies pay,” notes PwC. Amen to that. Mr. Geithner, take note. ###

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