Monday, May 9, 2016

Does the U.S. Have the Highest Corporate Tax Rate in the World?

Paul Krugman reports on his Twitter war with Donald Trump:
Yesterday I tweeted a response to Donald Trump’s claim that America is the highest-taxed nation in the world. Actually, he’s been busted on that claim repeatedly, which makes it even more shameful that TV interviewers just let it slide. But I’m also interested in the responses I’ve been getting, which I think tell you something about the broader situation – maybe call it the politics of epistemology. As you might guess, I’m getting a lot of denial, with quite a few people “explaining” that the international comparisons don’t include state and local government. Um, guys, maybe you shouldn’t make confident pronouncements about stuff you’ve never looked at.
Paul is noting that total taxes as a share of GDP is not really that high by international standards. I’m sure some conservative might scream “that’s average” and then go on some rant about marginal rates. My focus will be on corporate tax rates. KPMG has a handy comparison even if it is very incomplete. It claims that the corporate tax rate in the U.S. is the sum of a 35% Federal rate and an average state tax rate equal to 5%. Of course even domestic firms can get all sorts of tax breaks and likely pay less in state taxes. Multinationals are particularly adept at reducing their effective tax rates. Oil multinationals realize that several foreign tax authorities impose high surcharges on oil profits. I want to focus, however, on the battle between Wal-Mart and Puerto Rico. Puerto Rico imposes a 20% corporate tax but also includes a surcharge that can be up to 19% of profits if the firm’s revenues are high enough. The effective tax rate for the Puerto Rican affiliate of Wal-Mart is 39%. The 10-K filing for Wal-Mart notes that its U.S. tax rate is 37% even when one includes state taxes. And yet we see this claim:
The Secretary has not even proven that the use of transfer pricing to shift profits to other parts of the United States is a problem. As witnesses for both parties testified, the continental United States is not a tax haven like the Cayman Islands are... If Wal-Mart PR has managed to shift $79 million to, say, the State of Arkansas, those are profits on which Wal-Mart Stores will have to pay income tax at a rate of 38% or 39% – namely, a 35% federal corporate income tax, plus a 3% to 4% state corporate income tax.
Why does this matter? Consider this claim by one of Wal-Mart's expert witnesses - Professor Richard Pomp:
You’re not going to transfer profits from Puerto Rico to the United States, where it’s going to be taxed at a higher rate.
While I may have some sympathy with Wal-Mart’s claim that this particular alternative minimum tax discriminates against Wal-Mart, since when is 39% less than 37%?

1 comment:

Myrtle Blackwood said...

The US and the UK are essentially 'rentier' societies living off foreign income (as are others). Income, that is made by their transnational corporations. In turn these global corporations are antagonistic to local interests around the world, and also to the viability of our living planet.

Wealthy nations need to unite with weaker ones to create a viable development plan for the earth. Move away from a 'waste' economy, provide higher prices for raw materials (and keep them in the ground wherever possible) etc.

"The rise of the global corporation is the culmination of the modern industrial era, the playing out of a certain system of values" [p383 'Global Reach' Barnet and Muller, 1974]. These values are now obsolete.