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Finally, a point where Republicans and at least one prominent Democrat agree. Like President Barack Obama and Republican presidential nominee Mitt Romney, Austin’s U.S. Rep. Michael McCaul says corporate tax rates are too high.
To a recent voters guide question on how to combat unemployment, McCaul -- a Republican seeking another term representing the 10th Congressional District -- gave responses that included lowering America’s "corporate tax rate, highest in the world at 35 percent."
A decrease to 25 percent would "stop driving American businesses overseas," McCaul said in the guide, produced by the Austin and Texas chapters of the League of Women Voters and the Austin American-Statesman. McCaul faces Tawana Cadien (Democrat) and Richard Priest (Libertarian) on Nov. 6.
PolitiFact has recently checked corporate tax rate claims with a different figure, so we decided to compare this statement.
McCaul spokesman Mike Rosen told us by email that 35 percent is the top statutory rate for U.S. corporate taxes, citing an April 5, 2012, "backgrounder" from the Council on Foreign Relations.
The council, an independent, nonpartisan think-tank, said the U.S. had the highest corporate tax rate in the world by two measures: Excluding state and local taxes, the rate was 35 percent. With those sub-national taxes, the rate was 39.2 percent.
Most news stories we read while researching this fact-check used the latter rate -- combining federal, state and local. That’s the yardstick used in related PolitiFact articles, and it’s also the statistic that made headlines when an April 1, 2012, rate cut took effect in Japan and moved the U.S. into first place.
The rest of the top five are France, Belgium and Germany, according to a September 2011 report by the Washington-based Tax Foundation that gave 2012 federal-plus-state/local rates, weighted to reflect the economies’ sizes so that small countries would not have a disproportional effect on the average.
OECD statutory corporate tax rates, 2012
Source: Tax Foundation 2011 report
The foundation’s 2011 report and most of the news articles we read for this story limited their comparisons to advanced industrialized countries -- often citing the 34 members of the global Organization for Economic Cooperation and Development.
We asked foundation spokesman Richard Morrison for help tracking down country-by-country rates that did not include taxes below the federal level, to make an apples-to-apples comparison with McCaul’s 35 percent.
Morrison pointed us, via email, to an OECD web page with a chart showing those numbers for 2012.
The U.S. rate of 35 percent is the highest on the chart, with the other OECD nations averaging 23.6 percent (figures that, unlike the statistics cited above, are not weighted to reflect size of national economies).
So McCaul’s statement holds true for federal-level-only corporate tax rates as well as for the state/local-plus-federal rate.
But recent PolitiFact items have also taken into account the rate corporations pay after deductions and exemptions, called the effective rate.
In an Aug. 27, 2012, Truth-O-Meter article, PolitiFact New Jersey wrote, "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."
The 2011 foundation report summarized 13 studies of effective corporate tax rates across the world, which used different methodologies and were not limited to the OECD roster. The smallest study compared 10 countries; the largest, 183.
Those studies found the U.S. effective tax rate ranging from 23 percent to 34.9 percent, which often placed it in the top five, but never No. 1.
But the U.S. hit the top spot in a more recent report. Morrison told us the latest such comparison was made in September 2012 for the libertarian Cato Institute. That report calculated the U.S. effective rate at 35.6 percent and ranked it highest among OECD nations but fourth among all 90 nations it examined.
How did U.S. rates get to be among the highest? Actually, other countries dropped theirs, we learned by phone from Jonathan Masters, author of the Council on Foreign Relations piece.
We found succinct descriptions of the history in Time magazine and The Hill, a Washington, D.C. newspaper. An April 2, 2012, Time blog post says that while the U.S. rate stayed steady for two decades, "the trend internationally has been towards lower corporate tax rates." The Hill’s Aug. 27, 2012 blog post says that in 1986, the OECD nations’ average corporate tax was 50 percent, but "today, it’s 25 percent for those countries -- it has fallen in half. Meanwhile, the U.S. rate, which fell from 46 percent to 34 percent as a result of tax reform in 1986, is now stuck at 35 percent."
McCaul said the U.S. "corporate tax rate" is the "highest in the world at 35 percent."
The rate set by federal statute is the highest, both by itself and when considering the federal rate plus state and local taxes.
However, there’s much less consensus about effective corporate tax rates -- the rates corporations actually pay. Studies don’t even agree on what the U.S. effective rate is, pegging it between 23 percent and 35.6 percent. Older studies put the U.S. near the top; a recent study says the U.S. is No. 1 among OECD nations.
We rate McCaul’s statement as Mostly True.
League of Women Voters/Austin American-Statesman Voters Guide, Oct. 22, 2012
Phone and email interviews with Mike Rosen, communications director for McCaul campaign, Oct. 24-26, 2012
Council on Foreign Relations backgrounder, "U.S. Corporate Tax Reform," April 5, 2012
Phone and email interviews with Jonathan Masters, writer for Council on Foreign Relations, Oct. 26, 2012
Email interview with Richard Morrison, manager of communications for the Tax Foundation, Oct. 26, 2012
Organization for Economic Cooperation and Development spreadsheet, "Basic (non-targeted) corporate income tax rates," updated with 2012 data, accessed online Oct. 29, 2012
Tax Foundation blog post, "What is Japan's New Tax Rate?," March 30, 2012
Tax Foundation report, U.S. Corporations Suffer High Effective Tax Rates by International Standards, September 2011
Congressional Research Service, "The Corporate Income Tax System: Overview
and Options for Reform," Sept. 13, 2012
Tax Foundation, The Countdown is Over. We're #1, April 1, 2012
Time magazine blog post, "We’re #1! U.S. Officially Has the Top Corporate Tax Rate. Or Not.," April 2, 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
Reuters, US displacing Japan as No 1 for highest corp taxes, March 30, 2012
Internal Revenue Service data release, "Corporation Income Tax Brackets and Rates, 1902-2002," accessed Oct. 30, 2012
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