CTJ Explains Why Business Roundtable Report on Effective Tax Rates Is Hogwash

Yesterday, the Business Roundtable, a politically conservative group of corporate CEOs, released a report claiming to show that U.S. corporations pay higher effective tax rates than corporations of other countries. CTJ’s director Bob McIntyre was quoted in several news articles explaining why the report, which was written by PricewaterhouseCoopers, is nonsensical.

First, it includes both “current” income taxes (i.e., taxes paid) and “deferred” income taxes (i.e., taxes not paid). Because the US allows far more tax breaks in the form of (indefinite) deferrals than do other countries, that makes the US effective tax rate look much higher than it actually is. Second, the report looks at worldwide taxes paid, and attributes all of those taxes to the country where companies are headquartered. So if US companies pay a lot of foreign taxes, the report counts that as high taxes imposed by the United States!

Corporations’ public filings divide their tax liabilities into “current” taxes and “deferred” taxes, the deferred taxes being those a company expects to pay in the future. Taxes that are “deferred” are quite often never paid at all. If and when they are paid in the future, they will be recorded as “current” taxes during that year, but usually the company will have more deferrals that will offset any deferred taxes that come due.

Corporations’ public filings also provide their worldwide taxes on their worldwide profits. But clearly the U.S. government only has control over U.S. taxes. Many companies actually pay taxes at a higher rate on their foreign profits because other countries do not provide as many breaks for investment as the U.S. does. But surely no one expects Congress to give corporations even more breaks to help them pay their foreign taxes.

The report issued for the Business Roundtable includes current and deferred, worldwide taxes in its calculation of effective tax rates of corporations. Floyd Norris, the chief financial correspondent of The New York Times, calls this “highly misleading.” He asked the author of the report how much U.S. corporations actually pay to the U.S. government (how much their current U.S. taxes are in a given year).

The reply from PricewaterhouseCoopers’ Andrew Lyon (who happens to be a former assistant Treasury secretary under George W. Bush): “We have not looked at that data.”

Thankfully, Citizens for Tax Justice is looking into that data and hopes to have a report within a few months.