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Corporate taxes - how should we calculate them?

  1. profile image0
    JaxsonRaineposted 5 years ago

    I have seen corporate tax rates presented as a percentage of GDP whenever someone wants to say that US corporations pay some of the lowest tax rates in the world, but I can't for the life of me understand why anyone would consider that a fair measure of the tax rate that corporations are paying.

    Corporate taxes account for about 1.3% of GDP, and some use that fact as evidence that tax rates are lower in the US than other countries. Canada, for instance, has corporate taxes accounting for 2.6% of GDP.

    What does this really mean though? It's a combination of the corporate tax rate, and the total corporate share in GDP, which is different in every country. For instance, consider the US and Canada. Canada's corporate tax rate(marginal) in 2009 was 18%, where the US's corporate tax rate(effective, less than marginal) was ~27%. Does this really mean that US taxes are only half of what they are in Canada, because the US 1.3% is only half of Canada's 2.6%?

    Clearly not. The only fair way to look at corporate tax rates is to look at the percentage of their income that they pay. It is obvious that the US rate of 27% is higher than Canada's rate of 18%, and no fancy comparison to GDP can change that simple fact.

    Next time someone quotes taxes as a percentage of GDP, maybe you can help them understand.

    1. wilderness profile image95
      wildernessposted 5 years ago in reply to this

      It's not so simple as that.  Our corporate tax rate may be higher than Canada's, but that is based on taxable income.  GE's tax rate was 0% on income, but only after determining that their taxable income was effectively $0

      Does Canada do this to the extent that the US does?  Declare that most of what normal people would call "income", or "profit" is not taxable?  If we compare apples to apples we might find a very different story.

      1. profile image0
        JaxsonRaineposted 5 years ago in reply to this

        That's not true, GE did pay taxes. The whole NY Times article fiasco was/is a horrible propagation of false information. GE has stated its 2011 effective tax rate as 25%, for instance.

        When you look at an effective tax rate, you are looking at the total tax paid as a percentage of total income, so that accounts for all deductions and credits already.

        So America's 27% effective tax rate is higher than Canada's 18%.

  2. profile image0
    JaxsonRaineposted 5 years ago

    GE tax rate, all GE companies, minus GE Capital Services.

    2008 - 24.2% tax rate.
    2009 - 21.8% tax rate.
    2010 - 16.8% tax rate.

    http://www.sec.gov/Archives/edgar/data/ … 9/d10k.htm

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