The corporate tax rate is a heavily debated topic in this country. And many on the far right and those on the side of big business sight that upwards of a 35% corporate tax rate is far too high a premium to pay in taxes, just to do business in the United States. 'What, are you trying to force large manufacturers and job creators to do their business in other countries, or what?', they ask.
It's a fair question. And, when you add in (on the top end) up to another 4.2% state tax for big business, that's a rate upwards of 39.2%, which is the highest in the world. Sounds unreasonable, right? Well, it kind of is.. until you understand what they actually
end up paying. And why.
There's something called the 'effective corporate tax rate', and that is the number that represents what corporations in this country on average actually pay a year in taxes, once tax breaks and deductions and many other things (like diverting funds into offshore tax havens
) are taken into account. For 2011, the most recent fiscal year available to see, in the United States the average effective corporate tax rate was 12.1%. Equates to billions of dollars of a difference from the lauded 39.2%, all due to the way lawyers and accountants and CEO/CFO's can work their companies' books and manipulate our current convoluted tax codes, along with the 2008 recession, when our government gave corporations hefty tax break incentives to survive. Now, those tax breaks were set to begin to fall off in 2012, and all but end by 2014. Which means that we will likely see an increase in the amount that some corporations end up paying into the government by as soon as 2015, if they don't get extended that is. But still, either way nowhere near the 39.2% watermark that has corporations indignant and up in arms about fairness.
In fact, to put things in perspective, corporations are paying less now than they have at any other point in the last 65 years (basically since WWII), when you look at the effective tax rates (what they actually pay, not what the rate starts off at). If you were to chart it on a graph
, it's pretty much a steady decline arrow zigzagging downward, starting at its highest point around 1948 with an uptick of close to 50% (because of WWII) and then a steady decline after that. It was at around 40% in 1970. Then around 27% in 1980. Then there was a small uptick to just under 40% again in 1987. And then it just drops down steadily after that until the last few year's of this decade, where it's at its lowest over that entire time.
So, what's fair? Every country in the world it seems has some kind of corporate tax rate, as well as deductions and other accounting moves for corporations to make that allow them to effectively and almost always pay considerably less than that rate. And it's not unlike the way that citizen's pay taxes. Almost everyone qualifies for some, or many deductions, bonuses, etc that end up making your bill a lot less. In some cases, nothing at all. In many cases, you get a check in the mail for a difference in your favor. Likewise, a ton of business go years without paying a dime in taxes.
My question, is that fair? How could it possibly be fair to have a tax code where a large and profitable company can easily enough manipulate the system so that every single year they could find themselves paying next to nothing? I have felt for a long time now that a flat tax is a reasonable answer to this problem. Do away with deductions and bonuses and clever accounting loopholes like paying employees on the back end with untaxable dividend shares, or changing the way you depreciate your company's assets (for instance) over time, etc. etc. If we were to pick a number, say 20%, and call it a flat corporate tax, wouldn't that be better? If we could pull it off, wouldn't it be better to actually be able to count on a set amount from corporations on even given year to help fund the country's government in which they do business in, as opposed to having to be surprised year after year at how crafty these corporations are at finding and exploiting tax code loopholes?
Whatever the answer, whether it be cutting loopholes and/or raising the rate, corporations should pay not just more in taxes, but something much less unfair sounding: they should just simply have to pay their fair share.
References and good reads for further info:
Wiki site on the history of Corporate tax rates in the United States
Wall Street Journal article: With Tax Break, Corporate Rate Is Lowest in Decades
CNN Money article: GAO: U.S. corporations pay average effective tax rate of 12.6%
New York Times article: Effective Corporate Tax Rates