(Original post)
Editorial
May 6, 2011
It’s a perennial complaint of the business community that corporate taxes are too high. Combine federal, state, and local corporate taxes, and the top statutory tax rate in 2010 was 39.2 percent. That’s about equal to Japan’s combined rate (39.5), but higher than the rate in France (34.4 percent), Germany (30.2 percent), and Britain (28 percent). It’s far higher than Ireland’s 12.5 percent.
But when you look at what large companies actually pay, the story changes significantly. In the United States, the effective average rate for 2008 was 27.1 percent. That means the actual tax burden was lower than in Germany and Japan, on par with Britain, and a bit above France. Some critics of corporations insist the data, which comes from a recent business-sponsored report by PricewaterhouseCoopers, overstates the US burden. But even at face value, it demonstrates that the weight on American businesses isn’t nearly as onerous as corporate-tax-cut advocates would have you believe.
Still, it’s far from ideal to have a tax code where rates are relatively high, but corporations routinely use breaks, loopholes, and subsidies to reduce their liability substantially. Sometimes they eliminate it altogether. The Globe’s Beth Healy recently reported that some 30 Massachusetts-based companies that realized a profit last year paid no federal taxes. Meanwhile, according to Citizens for Tax Justice, a liberal Washington policy group, some 45 companies that turned a profit over the past three years have paid an average effective rate of just 12 percent.
So Washington policymakers should look with a gimlet eye on proposals to reduce corporate rates without also limiting breaks and loopholes. Further, they should consider strengthening the corporate alternative minimum tax, which was designed to prevent overuse of loopholes but has been weakened during the last two decades and further relaxed during the recession. Once the economy recovers, it’s reasonable to expect that corporations that turn a profit should pay their fair share of taxes.