Blowing smoke on corporate taxes

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American corporate leaders love to complain about the nation’s high corporate tax rate, one of the highest in the world. This rate, they say, is stifling business investment and encouraging U.S. corporations to move their headquarters to other countries.

It sounds logical. But it may not be true. A scholarly look at global tax payments, coupled with an on-the-ground look at the effect of taxes on business investment, suggests that these corporate leaders not only are crying wolf but may be blowing smoke.

Corporate leaders have been beating the drum for corporate tax reform, by which they mean corporate tax cuts. The U.S. rate is 35 percent, which is one of the highest in the developed world — Japan’s is highest, at 38 percent — and above the average 24 percent for the 34 advanced countries that make up the Organization for Economic Cooperation and Development (OECD). The rate in France is 33 percent, in Germany 30 percent, in Britain only 21 percent.

Many of these differences aren’t huge but the corporate leaders do have a point that our nominal tax rate is higher than that of most of our global rivals. The trouble is that these rates really are nominal, which the dictionary defines as “acting or being something in name only, but not in reality.”

The reality is very different, as a new paper by a law professor at the University of Southern California, Edward D. Kleinbard, says. According to Kleinbard, the big American corporations — the global corporations which are threatening to pick up and move — actually make out like bandits at tax time.


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