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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.
We rate the statement Mostly True.
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The Governor David Paterson Show, Interview with U.S. Senate candidate Joseph Kyrillos, Aug. 20, 2012
PolitiFact Tennessee, Freshman Congressman Scott DesJarlais says U.S. has highest corporate tax rate in the world, May 4, 2012
PolitiFact, Barack Obama in State of the Union says U.S. corporate tax rate is among world's highest, Jan. 25, 2011
PolitiFact, Pat Toomey says U.S. has highest corporate tax rates in the world, Jan. 3, 2011
PolitiFact Ohio, Sen. Rob Portman says the U.S. has the second highest corporate tax rate, Nov. 28, 2011
Tax Foundation, U.S. Corporations Suffer High Effective Tax Rates by International Standards, September 2011
Tax Foundation, What is Japan's New Tax Rate?, March 30, 2012
Bloomberg, Japan’s Rate Drop Puts U.S. at Top of Corporate Tax Rankings, April 2, 2012
Congressional Research Service, International Corporate Tax Rate Comparisons and Policy Implications, March 31, 2011
PolitiFact Florida, Sen. Marco Rubio says the United States will soon have the industrialized world’s highest corporate taxes, April 4, 2011
Reuters, US displacing Japan as No 1 for highest corp taxes, March 30, 2012
Tax Foundation, The Countdown is Over. We're #1, April 1, 2012
Business Roundtable, Global Effective Tax Rates, April 14, 2011
Oxford University Centre for Business Taxation, G20 Corporate Tax Ranking: 2011, July 2011
PricewaterhouseCoopers, Paying Taxes 2012: The Global Picture, accessed Aug. 23, 2012
American Enterprise Institute, Report card on effective corporate tax rates: United States gets an F, Feb. 9, 2011
American Enterprise Institute, Who's the April Fool? US combined tax rates highest in developed world, April 1, 2012
E-mail interview with Meaghan Cronin, spokeswoman for state Sen. Joe Kyrillos, Aug. 23-24, 2012
Phone and e-mail interviews with Scott Hodge, president of the Tax Foundation, Aug. 24, 2012
E-mail interview with Joseph Rosenberg, Tax Policy Center, Aug. 24, 2012
Associated Press, GOP Senate candidate Joe Kyrillos says he's open to raising taxes on wealthy, Aug. 16, 2012
Citizens for Tax Justice, The U.S. Has a Low Corporate Tax, April 5, 2012
E-mail interview with Aparna Mathur, an economist with the American Enterprise Institute, Aug. 24, 2012
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