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Beyond the Headlines: What Corporations Really Pay in

Income Taxes

Presentation byScott Hodge & Will McBride

202-464-6200www.TaxFoundation.org

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Statutory U.S. Corporate Tax Rate Compared toOECD Averages 1981 to 2010

U.S. Rate

Weighted Average of Non-U.S. OECD Nations

Simple Average of Non-U.S. OECD Nations

Source: Tax Foundation calculations based on OECD and IMF data

%

U.S. Continues to Fall Behind by Standing Still

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Corporations Have Been Decliningas a Share of Business Forms

C-Corporations S-Corps/Partnerships

Mill

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Source: IRS, Statistics of Income

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More Business Income is Now Taxed Under the Individual Tax Code than Corporate Code

Net Receipts in Billions of 2009 Dollars

Source: IRS, Statistics of Income

Pass-Through Income

Corporate Income

BUT NOBODY PAYS THATU.S. Business Has High Tax Rates but

Pays Less --New York Times

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.

Source: IRS;Doesn’t add up to 100% due to losses

1,900 Largest Companies pay 68% of All Corporate Income Taxes

Source: IRS

Corporate Income and Taxes Fluctuate with the Economy

Effective Corporate Tax Rate Has Averaged 26% Since 1994

Contribution of Various Credits in Reducing Effective Tax Rate, 2008

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%.

Contribution of Various Credits in Reducing Effective Tax Rate for a

Sample of Industries, 2008

 Rates and Credits as a Share of Taxable Income

All Sectors

Mining

Manufacturing

Educational

Services

Finance and

Insurance

Statutory U.S. Federal Rate 35.0% 35.0% 35.0% 35.0% 35.0%- Foreign tax credit -10.7% -14.5% -16.9% -0.3% -2.9%

- General business credit -1.2% -0.2% -1.2% -0.1% -0.7%- Other tax credit -0.2% -0.7% -0.1% -0.0% -0.0%

Effective U.S. Federal Rate= 22.8% 20.2% 16.8% 34.0% 32.5%

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.

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.

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.

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For More Information Contact:

Scott Hodge or Will McBride202-464-6200

www.TaxFoundation.org