According to the OECD, the U.S. statutory corporate tax rate is 39 per cent. This is a combination of the 35 per cent federal statutory rate and a weighted average of state marginal income tax rates.
But thanks to a complicated tax code riddled with breaks, subsidies, and loopholes, the (effective) rate actually paid is much lower.
From Goldman Sachs’ David Kostin:
However, statutory rates do not reflect the effective taxes paid by large-cap US firms.
For the last 45 years, the median S&P 500 firm has paid an effective tax rate averaging more than 5 percentage points below the statutory rate. Despite statutory rates hovering near 39% for the last 25 years, effective tax rates have been gradually decreasing (see Exhibit 2). At 30%, the current S&P 500 median effective tax rate is almost 10 percentage points below the statutory level, and close to the global statutory average. The aggregate tax rate has averaged 33% over the past 10 years and was 26% over the past four quarters.
According to Kostin’s research, less than 10 per cent of firms pay at least the statutory rate of 39 per cent.
“The tax preferences that create the gap between effective and statutory rates will
likely receive scrutiny from policymakers as they attempt to reform the tax code,” writes Kostin.
“By closing the gap between effective and mandated tax rates, the government could raise revenues while lowering the statutory rate, thus presenting the change as a tax cut. Democratic leaders, including President Obama and Minority Leader Pelosi, have specifically mentioned targeting corporate tax strategies that create this gap.”
Here’s the chart from Kostin’s note:
Photo: Goldman Sachs