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Election 2012: Are U.S. corporate taxes 'punitive'?

As the 2012 election season draws to a close tomorrow, we've heard quite a bit about two fairly different visions regarding taxation, although the conversation understandably seems to have been more focused on individual taxes than their corporate counterparts.


Yet, one would assume that the ongoing recovery (another positive jobs report was released Friday) would be affected to some degree by changes to the tax code at the corporate level, especially when a number of U.S. business leaders have been making the assertion that current U.S corporate tax rates are too high, so much so as to be "punitive".

On the face of things, they would seem to have a point given that the U.S. has a statutory corporate tax rate of 35%, which became the highest statutory rate in the developed world following a reduction in the Japanese rate on April 1 of this year, moving the U.S. into the top spot.

However, the tax code is a complicated thing, as we all know, and virtually no one ends up paying the statutory rate.

In fact, U.S. corporate taxes actually paid in 2011 fell to a 40-year low rate of 12.1%, even though corporate profits had rebounded to pre-recession levels.

When looking at corporate taxes as a share of GDP among the 33 member nations of the Organization for Economic Cooperation and Development (OECD), the average across all nations was 36.2% in 2008, with U.S. coming in at 27.3%. Only Turkey, Chile and Mexico had lower shares.

In 2009, U.S. corporate taxes had fallen to 1.3% of GDP, down from 4% in 1965, and higher only than Iceland in the OECD.

These figures also square with the Congressional Research Service's finding that for 2011, the effective weighted U.S. tax rate is 27.1%, compared to the weighted OECD average of 27.7%, and 25.3% for the 14 other largest OECD countries.

There are lots of ways at looking at taxes, and lots of ways of computing them. Given that no two companies are going to pay exactly the same rate given the various write-offs, deferrals, deductions, credits and so on, no "average" number is going to represent every situation. And of course there are state-to-state complications in the U.S.

In a nod to the merits of simplification and the actual effective rates being paid, in February, President Obama proposed lowering the overall corporate rate from 35% to 28%, and the manufacturing rate to 25%. The catch here is that loopholes and deductions are eliminated, which many aren't too enthused about since the current code allows them to pay less. And while some other countries have lowered their rates, they've also been eliminating loopholes and deductions.

There's no doubt the U.S. tax code is too complicated. But the numbers seem to dispel the notion that U.S. corporate taxes are "punitive," let alone an impediment to the economy, the recovery, or U.S. competitiveness. There are lower tax rates in some countries, yet none of them have larger economies or bigger responsibilities.

While the 2012 election will be over tomorrow, the tax debate will certainly continue as Washington looks at ways to balance the books. It would be helpful if that debate relied on solid data rather than hyperbole.

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