[edited to correct typos and add link to CTJ and Leonhardt articles 2/19pm]
Kevin Hassett, an economic grunt at the American Enterprise Institute and frequent contributor to the Wall Street Journal op-ed pages, prepared a report for the institute on corporate taxation. Guess what--it claims that the US overtaxes its corporations and that is the reason that we are losing jobs.
There are all sorts of things wrong with this report.
1) it disregards the impact of globalization on corporate decisions to move enterprises, and the fungibility of operations if jurisidictions left don't make the exit a highly taxing moment. It also disregards the lack of protection for US workers--yes, US workers are better paid than workers in undeveloped countries, and if multinational enterprises (MNEs) can merely substitute the one for the other, they will.
2) It first spends a lot of ink on the US statutory rate, complaining that it is higher than that of most other OECD countries. That is true, but really meaningless in itself. You can't have a decent understanding of a country's tax policies without looking at both tax rates and the base against which they are assessed. Since the corporate tax base in the US has more holes than Swiss cheese, looking at the rate tells you almost nothing about the corporate burden.
3) It notes that corporate taxes raise much less in revenue as a percent of GDP in the US than in other OECD countries. Somehow, the report intends this to be an indictment of the US corporate tax system as overtaxing corporations. I suppose the authors reach that by implying that corporations have fled the system and that's why. But it is really an indication that the thesis in the title of the report--that the US gets an F for bad taxes that are making US corporations uncompetitive--is wrong. The US has such a loophole riddled corporate tax system that corporations are easily able to avoid paying their fair share of taxes. IN fact, other countries have more effective tax systems that get more corporate taxes out of their corporations as a percent of GDP, so the US must be a tax haven. It is rather surprising that we haven't had an upsurge of grass-roots, tea party-style protests against all the big MNEs that manage to benefit mightily from the use of tax revenues (from roads to water to workers' comp to subsidized health care) yet pay next to nothing in taxes in return.
For some examples of these MNEs with low taxes and much use of benefits, see David Leonhardt, The Paradox of Corporate Taxes in America, New York Times, Feb. 2, 2011 . Leonhard points out that Carnival Corporation "wouldn't have much of a business without help from various branches of government" from the Coast Guard to Customs to road building and bridges and port maintenance, but the biggest benefit mayh be the price it pays, since it has only paid total (federal, state, local and foreign) taxes over the last five years equal to 1.1% of its $11.3 billion in profits." Other major US corporations with substantial economic profits pay corporate taxes less than 10%--Yahoo (7%), Boeing (4.5%), Prudential Financial (7.6%). Id. (And wasn't Prudential one of the banks that got to use the Treasury's ultra vires notice permitting banks that acquired other banks to use their losses without the strict limitation provided in the tax code section 382?)
4) It claims that the US corporations' effective tax rate is still way higher than for other countries. To do this, it uses two formulaic calculations for effective tax rates, neither of which is particularly trustworthy as to actual effective tax rates. It finds that its two hypothetical measures of effective tax rates come out at 29% and 23.6%. These are probably too high, but are considerably less than the statutory rate. it doesn't, for example, look at the amount of actual taxes paid compared to the amount of taxable income reported. That figure would suggest a higher effective rate than actually experienced, since taxable income is much less than economic income. It doesn't do what makes even more sense, look at actual current taxes paid as noted on financial statements of reporting companies compared to economic income as noted on financial statements of reporting companies. That number would be fairly accurate, and in fact comes out very low indeed. See, e.g., CTJ study, Revenue-Positive Reform of the Corporate Income tax, Jan 25, 2011 (noting that a Bush study in 2007 found only a 13.4% effective tax rate for 2000-2005, compared to a 16.1% rate for other OECD countries).
5) In comparing US corporations' statutory taxes to those in other OECD coutnries, it takes into accout state and local corporate taxation (average) rates. But note that the US has primarily corporate income taxes, while OECD countries may have a host of other taxes, including in most cases a substantial value-added tax system (VAT). The report doesn't bring that tax into the comparison. As a result, its comparison is again meaningless, because it isn't really comparing the overall tax burden to determine whether the US corporations are in fact paying tax haven rates or being stymied in competition.
6) And of course, these corporate excusers provide only the slimmest of rationales for asserting that the US is aided by improving the competitiveness of MNEs in other countries--usually along the lines that helping them invest more abroad will also have a spillover effect in terms of more investment here. Actually if we help them succeed there by reducing taxes here, we are cutting off our noses to spite our face, since they will move operations there and do less here. We'd be much better off using that money to fund education and basic scientific research that can improve our quallity of life and give us new things to manufacture!
As usual with the AEI, the ideological agenda has resulted in a report that primarily serves a propaganda purpose. I'd say that it isn't US corporate taxes that get an F, but rather this AEI report!