This week’s charts use data from the 2013 Organisation for Economic Co-operation and Development (OECD) Tax Database to update a previous chart on corporate income tax rates among OECD countries. The data show that the United States still leads the world in high corporate income tax rates.
In 2013, national statutory corporate tax rates among the thirty-four members of the OECD ranged from 8.5 percent in Switzerland to 35 percent in the United States; this is the same range as in 2011.
Despite having the highest national statutory rate, the United States raises less revenue from its corporate tax than the other members of the OECD on average. In fact, federal corporate income taxes raise little revenue compared with other federal taxes, roughly comprising 10 percent of total federal tax revenues in 2013.
Corporations, like individuals, can and do use tax breaks to lower their tax burdens and, consequently, the effective tax rate is lower than the statutory top rate.
However, these breaks shouldn’t be viewed independently of the corporate tax system. The United States not only imposes high rates, but it also taxes corporations on a worldwide basis: profits made by an American-owned computer plant are subject to American taxes whether the plant is located in Texas or Ireland. In contrast, most major countries do not tax foreign business income. In fact, about half of OECD nations have “territorial” systems that tax firms only on their domestic income.
As Jason Fichtner pointed out during his testimony before the Senate Committee on Finance in January 2012, the combination of high rates, worldwide taxation, and a competitive global marketplace makes our corporate tax system extremely punishing—and erodes US competitiveness.
To improve US competitiveness and unleash economic potential, policymakers must restructure the tax code—particularly the corporate income tax. By lowering the corporate income tax rate and moving to a territorial tax system, the United States can move to a nimbler tax system that is more globally competitive.
For more information on the problems with the US corporate income tax and some solutions for reform, see:
Jason Fichtner, “Increasing America’s Competitiveness by Lowering the Corporate Tax Rate and Simplifying the Code” (testimony, Mercatus Center at George Mason University, Arlington, VA, January 2012).
Jason Fichtner and Nick Tuszynski, “Why the United States Needs to Restructure the Corporate Income Tax,” (Working Paper No. 11-42, Mercatus Center at George Mason University, Arlington, VA, November 2011).