U.S. has Highest Marginal Effective Corporate Tax Rate in OECD

Washington, D.C., February 6, 2014—The United States has the highest marginal effective corporate tax rate (METR) in the OECD at 35.3 percent, according to a new study published by the nonpartisan Tax Foundation. The findings dispel the misconception that while the U.S. statutory corporate tax rate is high, “loopholes” in the code make our effective tax rates competitive with those found in other developed countries.

Key findings:

  • The marginal effective tax rate (METR) on corporate investment (i.e., the tax impact on capital investment as a portion of the cost of capital) is 35.3 percent in the U.S.—higher than in any other developed country.
  • The U.S. has maintained the highest METR in the OECD since 2007, when Canada’s multiyear program of corporate tax reform brought its METR below the G-7 average.
  • Nonetheless, the White House and Treasury Department continue to assert that the U.S. has a lower METR than Canada by failing to properly account for sales and property taxes.
  • The U.S. average effective tax rate on corporations (AETR) is irregular from year to year due to the complexity and instability of the corporate tax code.
  • The U.S. average effective tax rate on corporations (AETR) is also high and variable from year to year.
  • Excessively high U.S. corporate tax rates have shrunk the U.S. corporate sector and reduced corporate tax revenues.

“A country’s competitiveness is hurt by taxation that undermines productivity through investment,” said Dr. Jack Mintz, co-author of the report, and Director and Palmer Chair in School of Public Policy, University of Calgary. “There is no doubt that the free-market system of the U.S. has been a beacon for entrepreneurs and capital investors. But it can do better with multinational companies if its corporate tax system can be reformed to combine a lower tax rate with a broader tax base that facilitates capital investment in general rather than benefiting only a few who are able to navigate through a complex tax structure.”

Unlike in Canada where income earned and taxes paid by corporations appear to correlate with each other along with explainable economic interruptions, U.S. business taxation is distorting. The excessively high corporate income tax rate has become a cause of tax inefficiency and ineffectiveness by leading businesses to excessive tax planning and tax-induced avoidance of incorporation.

Full Report: The U.S. Corporate Effective Tax Rate: Myth and the Fact

Media Contact:
Richard Borean
Manager of Communications
Tax Foundation
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*The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.