US Companies’ Effective Tax Rate Measured
February 11, 2012 Taxation in USA
Companies incorporated in the USA face the second highest effective tax rate in the world, despite making use of tax breaks and deductions.
According to a video recently released by the Tax Foundation, American companies are often perceived by the media and public as exploiting loopholes in the tax system to excessively lower their tax obligations in the USA. However, several studies have conclusively demonstrated that the perception is wholly inaccurate and US companies consistently pay one of the highest effective tax rates in the world.
Data presented in the video indicates that US companies face an effective tax rate of approximately 35 percent, which rises to an average of 40 percent if state taxes are also considered. Even if tax deductions are taken into account the effective tax rate in the USA is still the second highest in the world, only behind Japan. However, it was suggested that the Japanese government will soon cut the corporate tax rate, leaving US companies paying the highest rates across the world.
Commenting on the effective tax rate faced by US companies the president of the Tax Foundation Scott Hodge said, “… the data on American businesses in general is clear: they’re paying much higher rates than their foreign competitors.” He added that the high tax rate was detrimental to the companies’ ability to do business, and should be addressed through a comprehensive reform of the entire US tax system.
Photo by David Reber’s Hammer Photography