Last Updated Jul 7, 2011 2:59 PM EDT
Sorry, just wanted to see if repeating that particular chestnut, intoned like a mantra by Republican presidential candidates, CEOs and Tea Partiers alike, would eventually make it true. Guess not. U.S. corporate income taxes as a share of GDP are the second-lowest among 26 developed economies, according to a new report from Citizens for Tax Justice (see chart at bottom; click to enlarge). Only Iceland, a country that flopped worse during the financial crisis than LeBron James in the fourth quarter, has lower rates.
Between 1965 and 2009, corporate income taxes in the U.S. plunged from 4 percent of GDP to 1.3 percent. That compares with an average of 2.4 percent for nations in the Organization for Economic Cooperation and Development. Claims that the U.S. has the highest tax rates in the industrialized world only look at the 35 percent statutory rate, without factoring in the various loopholes, credits and other subsidies many American companies (if not small businesses, it's worth noting) typically get.
Such figures make the dispute in Washington over the debt ceiling even more surreal than it already is. Republicans have so far refused to budge an inch on proposals to raise taxes as a way to reduce the federal deficit. This intransigence has even conservative pundits, from David Brooks to Bill Kristol, mystified. And for good reason. Not only are corporate taxes low, but they're also doing nothing to stifle business profits. As my BNET colleague Constantine von Hoffman notes, corporate earnings are positively percolating. And they did even better in the '90s, when taxes were higher.
What's more, companies already have an estimated $2 trillion socked away on their balance sheets. They're putting off hiring not because they lack cash, but because they lack customers. Cutting their taxes even more might fatten their profit margins, but it will do nothing to lift the economy.
None of which is to say that our corporate tax system isn't in need of repair. While low for some companies, particularly multinationals heady enough to hire platoons of tax lawyers, rates are considerably higher for others. Global players are encouraged to stash money overseas, discouraging them from investing in the U.S. Federal tax revenue is plunging.
It's a problem. Which is exactly why any serious discussion about tax reform must do away once and for all with the by now thoroughly debunked notion that heavy taxes are smothering domestic firms. It's pure fiction.
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