Is the 35% U.S. corporate tax rate hurting America’s economy?

“The United States has a top corporate income tax rate of 35%. Add in state and local income taxes, and it comes to roughly 39%. It is the highest nominal corporate tax rate among the developed economies,” Charley Blaine reports for 24/7 Wall St. “That doesn’t tell the entire picture, however. When you take out research-and-development tax credits, deductions for income taxes paid in other countries and a host of other deductions and credits, the effective rate comes out closer to 27.7%. The new figure is roughly in line with tax rates in other countries, according to the Organization for Economic Cooperation and Development (OECD).”

“The current statutory 35% top rate is bad and should be cut to, say, 25%, many economists say,” Blaine reports. “The current rate discourages foreign companies from making big investments in the United States unless they have to… At the same time, tax-cut proponents say that the high tax rate pushes U.S. companies to move more of their investment spending outside the United States. Cisco Systems Inc. routinely books billions of profits annually through subsidiaries in Switzerland, the Netherlands and Bermuda. CEO John Chambers has hinted at moving jobs out of the country unless the tax problem is fixed. Plus, and this is important, companies that earn big profits overseas do not like to bring the money home because it is subjected to U.S. corporate income taxes. This repatriation can end up being a double taxation.”

“As of December 31, Apple Inc. was sitting on a cash hoard of some $158.8 billion. Of that, according to Apple’s fiscal first-quarter report, $124.4 billion was parked outside the United States. It is not clear what Apple is doing with all that money. It estimates $11 billion in capital spending in fiscal 2014 and it can fund its dividend and interest payments on its debt from domestic profits,” Blaine reports. “That is all bad for the United States. You can cut the rate and cut taxes on repatriated profits, but some may argue that this would push the deficit higher. A better solution, economist Laura Tyson has argued, would be to offset a cut in the corporate tax rate with a boost in the tax rate on dividends and capital gains, now close to historic lows. Half of those dividends and capital gains go to pension funds, retirement plans and nonprofits and are not taxed anyway. Could such an idea happen? Most likely not this year. And Apple’s big cash hoard will keep on growing.”

Read more in the full article here.

MacDailyNews Take: The U.S. corporate tax rate is way too high. Obviously.

Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth.Apple CEO Tim Cook, May 21, 2013

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  1. Is the 35% U.S. corporate tax rate hurting America’s economy?

    Shouldn’t be too hard to answer. Reduce tax rate so that Local, State and Federal tax is 15% total for five years and see what happens. Then increase it to to 50% total for five years. Then compare businesses actions to the two and you’ll have your answer.

  2. 35%. Bullshit.

    First all it’s a myth that U.S. corporate tax rates are higher than the tax rates of other big economies, because of deductions. The fact is that after deductions and tax credits, the average corporate tax rate in the U.S. is actually lower. According to the Congressional Research Service, the United States has an effective corporate tax rate of 27.1%, compared to an average of 27.7% in the other large economies of the world.

    Next? U.S. corporations need lower taxes in order to make investments in new jobs? Nope. Corporations are sitting on almost $2 trillion of cash they don’t know what to do with and are not investing in new jobs. The 1000 largest U.S. corporations alone are hoarding almost $1 trillion.

    Rather than investing in expansion, they’re buying back their own stocks or raising dividends. They have no economic incentive to expand unless (or until) consumers want to buy more, but consumer spending is pinched because the middle class keeps shrinking and the median wage, adjusted for inflation, keeps dropping (and has since the late 1960s).

    And U.S. corporations need a tax break in order to be globally competitive? BS again. The “competitiveness” of American corporations is meaningless because most big U.S. corporations are no longer “American” companies at all. The biggest firms have been creating way more jobs overseas than in the U.S. itself.

    What a complete crock. Anytime a for-profit business suggests that by paying less they’ll give back more in a “piss-down” economic fashion, means they’re lying.

  3. I don’t think any corporations or anyone making more than $100k per year should have to dirty themselves with paying any taxes, state or local. The entirety of the tax burden should be shouldered by the middle class and poor, because… obviously. And only those in the wealthiest 1% should be allowed to vote because… obviously. I am Republican.

  4. How did all that tax cut tin’ work for your economy to this point, jackanapes? Massive tax cuts have allowed massive hoards of cash to move to the top 5%. That’s it, that’s all. If any of the bullshit arguments about “job creators” needing more money to help the economy were true, you wouldn’t have economic collapses on a regular basis would you?

  5. Truly don’t understand you Americans. You accept that your IRS (?) seek out every individual expat American in the world and double tax them. I have dual-national friends (Canadian/American) who have relinquished their American Citizenship[1] rather than pay dual taxes but your government can’t legislate any kind of taxation on even domestically operating companies in the U.S. Itself. Does any US company actually pay 35%? Doubtful.
    [1] Canada’s quality of life is much higher and Healthcare is actually vastly superior in the delivered standards of care, accessibility, quality of doctors and we actually don’t mind an extra day’s wait if someone’s need is more urgent for things like MRIs.

    1. Canada blows. They have not created one original business, concept, art form, music, literature, machine, architecture in their entire impotent, polar existence. Their claim to fame is the dice roll of sharing a border with the United States Of America.

  6. The author of that article is rather confused: he states that the average effective rate is 27%, But then goes on to use the 35% number as if it were the actual fact. And yes, it would be nice to lower the statutory rate in exchange for fewer loopholes, but name me one loophole that actually has a chance of being closed.

    Furthermore, I’ve seen estimates that the actual tax rate is as low as an average 14%. Also, this is dependent on the particular industry: utilities are taxed at a high rate (34%) and software firms average a much lower rate (9%) (by some calculations. But software companies can, in theory, move offshore, but utilities can’t: so the idea that the tax rate is causing companies to flee the US it bogus.

    1. Consider the insanity of what you just described. Companies ARE fleeing the US. That is not bogus. It’s a fact. General Electric is now a French Company. Many companies maintain only small presences in the US and have moved much of their operations overseas. . . and it is mostly because of tax reasons. Income taxes are the least of the taxes that are chasing them out.

      But to return to the insanity. The basic tax rate for corporations in the US is 35% but the Byzantine tax code results in what you wrote. The outcome varies according to a multitude of seta sides, some of which are industry, or even COMPANY specific, that should never have gotten into our tax code. . . but there they sit. Special favors for political cronies. There are tax breaks in the code that are written to benefit specific individuals. . . ABSURD! That is insane.

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