The statutory federal corporate tax rate in the United States is 35%, and it has been since 1993. Any company that pays that rate should probably be looking for a new chief financial officer.
When state taxes are slotted in, the average combined tax rate is 39.1%, according to a recent report from the Congressional Budget Office (CBO). Again, though, it is a rare company that pays that much in taxes. Apple Inc. (NASDAQ: AAPL), for example, reported a third-quarter fiscal 2017 effective tax rate of 22.9%. Boeing Co. (NYSE: BA) reported a fiscal second-quarter effective tax rate of 28.7%.
According to the CBO, the effective corporate tax rate “is a measure of a corporation’s tax burden on returns from a marginal investment (one that is expected to earn just enough, after taxes, to attract investors). CBO estimates that the effective corporate tax rate was 19 percent in the United States in 2012,” the most recent year for which complete data were available.
According to the CBO, the U.S. statutory tax rate of 39.1% is the highest among the G20 countries and the effective tax rate of 18.6% is fourth highest, behind Argentina (22.6%), Japan (21.7%) and the United Kingdom (18.7%).
The biggest loophole in the U.S. tax code allows U.S. corporations to defer tax payments indefinitely on profits they earn overseas, according to research published on Thursday by the Economic Policy Institute (EPI). The researchers found that the effective U.S. corporate tax rate ranges between 13% and 19%. The CBO also noted that other tax preferences in the federal tax code that are not included in its analysis “would lower that tax rate even more.”
EPI notes that genuine tax reform would “close the deferral loophole and ensure that large multinational corporations cannot continue to dodge the taxes they owe.” The most recent tax reform proposal presented by congressional Republicans, however, creates a territorial tax system under which only local income is taxed and the federal government “would no longer tax multinational corporations’ offshore profits at all.” A territorial tax system would make permanent the current deferral loophole according to EPI:
This would cause an enormous revenue loss. In hopes that Congress would pass a repatriation tax “holiday” (as happened in 2004), large multinational corporations have used the current deferral loophole to book $2.6 trillion in profits offshore. The corporate tax base is likely to erode far more if this deferral loophole were made permanent.