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The United States may lead the rest of the world in a number of areas, but not all of them are positive.
Rep. Leonard Lance (R-7th Dist.), for example, notes that the nation tops the list when it comes to certain types of taxes.
"The United States currently has the highest corporate tax rate in the world," Lance said in a news release last week that emphasized the need for tax reform.
PolitiFact New Jersey has tested this claim before, when it was cited twice by state Sen. Joe Kyrillos (R-Monmouth). Kyrillos’ claims were rated Mostly True.
Lance’s claim hasn’t broken new ground in the six months since Kryillos’ last claim about corporate tax rates.
Let’s revisit this popular talking point.
As far as corporate tax rates, the U.S. leads the pack worldwide – but not after factoring in various tax breaks paid by U.S. businesses.
But first, let’s review the two types of corporate tax rates: statutory rates and effective rates.
The top statutory corporate tax rate in the United States is 39.1 percent and represents a combination of federal, state and local tax rates imposed by law before any tax breaks are factored into the equation.
Japan once had the highest combined tax rate in the world, but lowered it in April 2012. That move bumped the United States’ statutory rate to the highest among industrialized nations, according to an analysis by the Tax Foundation, a pro-business group.
So the United States has the highest corporate tax rate in the world in terms of statutory rates.
Now let’s look at the effective tax rate, which is typically lower than the top statutory rate because of tax breaks.
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 ranged 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 most of them, U.S. effective rates were among the top five highest for the countries analyzed, the report stated.
Apart from that Tax Foundation report, it’s worth noting that a separate analysis found that 30 Fortune 500 companies, including General Electric, didn’t pay any federal corporate income taxes for 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?
Tax Foundation president Scott Hodge told us previously that statutory rates make for better comparisons. Effective rates are unpredictable and vary across different industries, while statutory rates are fixed, he explained.
"(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, has 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, told us for our Kyrillos fact-check on this claim that "both are equally valid measures of looking at the burden of the corporate income tax."
Lance claimed in a news release, " The United States currently has the highest corporate tax rate in the world."
It’s accurate that, at 39.1 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.
As we did with Kyrillos’ two claims on this topic, we rate Lance’s claim Mostly True.
To comment on this story, go to NJ.com.
Leonard Lance press release, Lance Says The Time Is Right For Meaningful Tax Reform, April 15, 2013
E-mail interview with Richard Morrison, spokesman, The Tax Foundation, April 23, 2013
PolitiFact New Jersey, U.S. Senate hopeful Joe Kyrillos claims United States has the "highest corporate tax rate in the world," Aug. 27, 2012, accessed April 15 and 23, 2013
PolitiFact New Jersey, Joe Kyrillos says United States has highest corporate tax rate in the world, Oct. 4, 2012, accessed April 15 and 23, 2013
TaxFoundation.org, Yes, Sen. Sanders, We Really Do Have the Highest Corporate Tax Rate in the World, April 12, 2013, accessed April 23, 2013
Tax Foundation letter from President Scott A. Hodge to Sen. Bernie Sanders re the U.S. corporate tax rate, April 12, 2013, accessed April 23, 2013
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