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Pro-Tax Reform Group Debunks 6 Corporate Tax Myths

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Feb 22nd 2016
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The Alliance for Competitive Taxation (ACT), a consortium of large US businesses that compete globally and promote tax reform, recently released what it calls the “Top Six Corporate Tax Myths of 2015.”

ACT is a trademark of TRGroup Inc., an IT and security consulting firm in Ocean City, Maryland. According to its website, ACT believes tax reform “should simplify the tax code, promote economic growth, and be fully paid for by ending tax breaks and preferences so that not one dime is added to the deficit.”

Here are the six myths, according to ACT.

1.Corporations have more than $2 trillion in untaxed profits sitting offshore. US companies doing business in foreign countries often need to establish local operations, for which they pay taxes to the host country. According to ACT, the United States is the only Group of Seven (G7) country that levies a second tax on that income when repatriated to the parent company. Because of that, the US tax code encourages companies to keep their foreign earnings overseas.

Berkeley Research Group estimates that “adoption of a modern international tax system similar to the other G7 countries would boost the economy, resulting in an immediate repatriation of an additional $1 trillion, increasing gross domestic product by over $200 billion and employment by 1.46 million,” ACT states.

2.Increasing the corporate tax rate would benefit hardworking Americans. “Corporate tax increases are the most economically damaging way to raise revenue, as they reduce economic growth, reduce jobs, depress wages, and hurt all American families,” ACT states.

It isn’t corporations that are burdened by corporate taxes, ACT states. Those hit hardest are US workers through lower wages, consumers through higher prices, and savers through lower returns.

3.After deductions and credits, American corporations actually pay a similar effective tax rate as their competitors in other countries. At 39 percent, the United States has the highest statutory corporate tax rate, including state taxes, according to ACT. In comparison, the average rate of other member countries of the Organization for Economic Cooperation and Development (OECD) is 24.6 percent. ACT cites OECD statistics that indicate corporate taxes comprised 10.2 percent of all US tax revenue in 2012, 20 percent more than the OECD’s average of 8.5 percent.

“While US corporate revenues as a share of gross domestic product are lower than the OECD average, this is because more than half of US business income is earned by business entities that are not subject to corporate tax, such as partnerships, S corporations, and sole proprietorships,” ACT states.

4.The tax rate corporations actually pay to the US government after they take advantage of deductions, exceptions, and credits is only 20 percent. Citing research in the Journal of Economic Perspectives, ACT says that 20 percent is misconstrued at least partly because it includes S corporations’ profits that aren’t subject to corporate tax. If those entities are removed, the effective corporate tax rate is 29 percent based on the cited research – and even higher if foreign income taxes are considered.

5.The largest US businesses don’t pay any taxes at all. Citing an unnamed study, ACT indicates that this myth is based on numbers from the Great Recession – which, in this case, spanned 2008 to 2012. But companies didn’t owe corporate taxes because they didn’t earn taxable income. And Congress voted to allow companies to accelerate deductions of domestic investment costs (i.e., bonus depreciation) to stabilize the economy, ACT states.

6. Every year corporations are paying fewer taxes to the federal government. Citing estimates by the Congressional Budget Office, ACT states that corporate income taxes rose to $344 billion in 2015 – 7 percent more than in 2014, 149 percent more over 2009, and is the third-highest amount in US history after 2006 and 2007.

Corporate tax revenues have risen despite a decline in the number of corporations and increase in businesses that are not subject to corporate taxes, ACT states.

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