While the U.S. maintains the highest corporate tax rate at 35 percent, a paper published earlier this month by University of Southern California law professor Edward Kleinbard, suggests many companies use a system of elaborate tax loopholes to avoid paying anywhere near that amount.
Kleinbard's work gained national recognition after it was highlighted by the New York Times' Andrew Ross Sorkin in a column Monday. Corporate taxation garnered attention after a series of U.S. companies acquired foreign firms and then moved their headquarters overseas for tax purposes - also known as inversion.
Kleinbard's article suggested that data from the General Accountability Office showed corporations paid an average of 12.6 percent as of 2010.
"It is true of course that the federal corporate tax rate -- nominally, 35 percent-- is too high relative to world norms, and that the ersatz territorial system requires firms to waste money in tax planning and structuring, but effective marginal tax rates and overall effective tax rates reach the level of the U.S. headline rate only when firms studiously ignore the feast of tax planning opportunities laid out before them on the groaning board of corporate tax expenditures," he wrote in the 32-page paper.
The many who criticize the U.S. tax code aren't convinced. Will McBride, Chief Economist for the American Tax Foundation, suggest the GOA data cited by Kleinbard is far from accurate and underestimates the taxes that corporations paid by 100 percent because it relies on data from a year where companies carried a high number of losses forward due to the recession.
In spite of that, U.S. companies still pay too much in taxes with rates above 20 percent. While McBride agrees there are too many loopholes in the tax code, he isn't opposed to companies attempting to legally reduce their tax burdens.
"You have to ask why there is so much of it going on," McBride says. "The big one is the manufacturing deduction that knocks off 3 points for manufacturers. ... Then there are all of the green energy credits which are completely over the top and do not belong in the tax code."
Sorkin urges readers to give the professor's article a look whether or not they agree or disagree because it will, "explain why corporate tax change will be so difficult to accomplish even with the backing of both Democrats and Republicans, who have routinely provided lip service to the idea of lowering rates, but taken no action."
Source: Berr, Jonathan, "Expert debunks claim U.S. corporate taxes are too high," CBS Money Watch, August 19th, 2014