America’s Phantom Corporate Income Tax

A very helpful David Kocieniewski article in The New York Times lays out what progressive wonks have been saying for years—even though America’s statutory corporate income tax rates are very high nobody actually pays them and the effective rates are much lower.

On top of Kocieniewski’s chart you see the even-more-striking fact that the corporate income tax in the United States raises an extremely small amount of revenue as a share of GDP. That’s in part because many businesses in the United States have shifted over the years to organizing themselves as S Corporations to avoid the high notional corporate income tax rate.

Either way you look at it, the point is that it’s not actually true that corporate America faces some terrifying tax disadvantage vis-a-vis other countries. It is true that making the headline corporate income tax rate lower would be a good idea since that might give us a less distortionary tax code, but in light of the long-term budget crunch that means we need to make up for any rate cuts by closing dividends. The Obama administration has laid out revenue-neutral corporate tax reform of that type to be its goal, but it seems to me that if we want to close the budget gap we ought to be aspiring to have a corporate tax reform that’s at least moderately revenue-enhancing.