Where The U.S. Leads the World (Almost)

According to a report by KPMG, the U.S. has the second highest corporate income tax among all nations.   I don’t know what the workforce is like in Vanuatu and I am not certain how I would feel about worshiping at a shrine that is the remnants of a wrecked WWII B17 bomber, but if those aren’t concerns to you they have a 0.0% corporate tax rate.  So also do Bahrain, Georgia, Saba, as well as some well known industrial powerhouses such as the Bahamas, Bermuda, and the Cayman Islands.

That we (the U.S.) have almost the highest statutory corporate tax rate in the world is the focus of a lot of debate in Washington, but what is probably more relevant is the dramatic differences in the effective tax rates of different industries in the U.S..  Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University, calculated the average tax rate of various business sectors using public financial statements.  The chart below illustrates the disparity between the average tax rates  paid by different sectors of the U.S. economy and includes only the highest and lowest twenty industries.  My purpose isn’t to single-out any industry or group of industries so the chart isn’t a commentary on the merits of any particular industry, I’ll let readers make their own assessments about the implications of varying rates on different industries.    The chart shows the average rate based on the public filings of over 6,000 publicly traded companies and includes only the rates  for profitable companies.    Effective marginal rates would be better to show but public data does not allow for that estimation.

Tax rates by industry

Unfortunately, it does not seem that the high level of concern about the world  ranking of  the U.S. corporate tax rate is matched by a concern about the large differences in effective rates by industry.  A lot of people are all for reducing the statutory corporate rate in the U.S., they just aren’t so keen on reducing or eliminating  the $100 billion + in preferences and breaks that could pay for it without adding to the nation’s deficit.

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3 Comments on “Where The U.S. Leads the World (Almost)”


  1. Even taking loopholes into account, the US has the second highest effective corporate tax rate: http://www.aei-ideas.org/wp-content/uploads/2012/02/022212hassett1.jpg

    Plus, corporate taxes have a high excess burden on the economy, and much of the burden falls to workers and consumers. Good policy would be to follow Canada’s lead, cut the corporate tax rate to less than 20% and remove nonsense loopholes.


    • Wise words indeed Tom, your “excess burden” observation leads me to believe that you are an economist or student of economics and if so definitely accounts for the clarity of thought :).I wasn’t aware of Canada’s low rate, limited tax preference policies (Surprising since I festered as a youth a few miles below the Canadian border). What about provincial taxes and payroll taxes? How do they impact the overall corporate burden?


      • You’re right, I’m an economics student! I have to admit, I don’t know a lot about provincial corporate taxes, other than that they’re progressive based on business size and that they vary quite a bit by province. My understanding, however, is that even with provincial corporate taxes, the Canadian burden is smaller than the American one. That’s something I should look into more.

        As far as payroll taxes, I know that they’re lower in Canada than in the US. CPP rates are lower than FICA rates and we don’t have an equivalent to the Medicare payroll tax. But I don’t really know the specific effects of this on the corporate burden.


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