March 27, 2013

The Fall of Effective Corporate Tax Rates

If you’ve been following the tax fight, you already know that corporations pay an effective tax rate that is far lower than the statutory 35% corporate income tax rate. But you may not know that it hasn’t always been that way. An article in the Washington Post today shows how effective corporate tax rates have dramatically trended down over the past few decades:

A Washington Post analysis of data from S&P Capital IQ, a research firm, found that in the late 1960s and early 1970s, companies listed on the current Dow 30 routinely cited U.S. federal tax expenses that were 25 to 50 percent of their worldwide profits. Now, most are reporting less than half that share.

The reason is not simply a few loopholes tucked deep in the tax code. It’s far bigger: the slow but steady transformation of the American multinational after years of globalization. Companies now have an unprecedented ability to move their capital around the world, and the corporate tax code has not kept up with the changes.

Just the opposite, in fact. Experts say the U.S. code has encouraged companies to shift their income overseas, where it is more lightly taxed by the U.S. government. Many firms, in turn, have discovered that just as they can move their manufacturing to otherparts of the world, so, too, can they shift their income to far-flung tax havens such as the Cayman Islands.

It’s ridiculous for our nation’s tax code to encourage companies to shift their profits overseas. It isn’t fair to replace this lost revenue with more of a burden on the middle class. And there’s no reason for  corporations such as Pfizer and Hewlett-Packard to receive tax refunds.

Check out the full article here (and a cool graphic showing how tax rates have changed for each corporations here), and share it with your friends!