When it comes to taxing businesses, the United States is leading the world, according to Republican U.S. Senate candidate Joe Kyrillos.
As he looks to unseat Democratic incumbent Robert Menendez this November, Kyrillos has refused to sign an anti-tax pledge, but maintained in an Aug. 20 interview on WOR-AM that he’s looking to lower tax rates.
"We've got the highest corporate tax rate in the world, in the world," said Kyrillos, a state senator representing Monmouth County. "So, I’m about reducing tax rates."
As far as the corporate tax rates on the books, Kyrillos’ claim is on the money. However, when you factor in various tax breaks, the rate actually paid by U.S. businesses has been among the highest in the world, but not in first place, studies show.
For this fact-check, we’re focusing on two different types of corporate tax rates: statutory and effective rates.
To back up Kyrillos’ claim, a spokeswoman pointed to the top statutory corporate tax rate of 39.2 percent in the United States. That figure represents a combination of federal, state and local tax rates imposed by law before any tax breaks.
Once Japan reduced its combined corporate tax rate in April, the U.S. rate became the highest among industrialized nations, according to an analysis by the Tax Foundation, a pro-business group.
So, Kyrillos’ claim about a first-place finish is on target in terms of statutory rates.
But the United States does not necessarily lead the world when you consider the effective tax rates paid by U.S. businesses. Due to various tax breaks, those rates are typically lower than the top statutory rate.
In a September 2011 report, the Tax Foundation summarized the findings of the latest 13 studies of effective corporate tax rates across the world. Due to different methodologies, those studies determined U.S. effective tax rates ranging from 23 percent to 34.9 percent, according to the report.
The United States did not rank first in any of those studies, but in 10 of them, U.S. effective rates ranked among the top five highest for the countries analyzed, the report states. However, the effective rate in Japan will likely drop, possibly moving the United States to the top spot in future studies.
Apart from that Tax Foundation report, it’s worth noting that a separate analysis found thirty Fortune 500 companies, including General Electric, didn’t pay any federal corporate income taxes over the 2008-2010 period. That study was done by the left-leaning Citizens for Tax Justice along with the Institute on Taxation and Economic Policy.
So, what’s the better measure -- statutory or effective rates?
According to Tax Foundation president Scott Hodge, statutory rates make for better comparisons. Effective rates are unpredictable and vary across different industries, but the statutory rates are fixed, Hodge told us.
"(The effective tax rate) will differ from industry to industry and business to business, whereas the list price is what it is and everyone starts at that point," Hodge said.
But Joseph Rosenberg, a research associate at the nonpartisan Tax Policy Center, argued that "effective tax rates provide the best measure of comparison for overall tax burdens."
Aparna Mathur, an economist with the conservative American Enterprise Institute, added in an e-mail that "both are equally valid measures of looking at the burden of the corporate income tax."
In a radio interview, Kyrillos claimed, "We've got the highest corporate tax rate in the world."
It’s accurate that, at 39.2 percent, the United States has the highest statutory corporate tax rate among industrialized nations. But with various tax breaks, U.S. effective corporate tax rates range anywhere from 23 percent to 34.9 percent, studies show.
Those effective tax rates may not land in first place, but they’re still among the highest in the world.
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