Winners and Losers Under the U.S. Corporate Tax Code

My colleague Binyamin Appelbaum has an article today on the challenges of reforming the corporate tax code, which currently presents a wide disparity in its treatment of different industries and individual companies.

The top statutory tax rate may be 35 percent, which conservative politicians are fond of referring to as the “highest” or sometimes the “second highest” rate in the world. But with all the loopholes and write-offs offered in our byzantine tax system, companies often pay far less than 35 percent. In fact, companies pay an average effective tax rate of about 25 percent. Exactly how much any one company pays can depend on what industry it’s in, and how sophisticated its tax department is.

As we noted earlier today, Martin A. Sullivan, an economist and contributing editor to Tax Analysts, recently testified about some of the disparities in the tax code. Here, from his testimony, is a table showing a range of the winners and losers under the current corporate tax code, based on the effective tax rates they pay:Martin A. Sullivan

Compare a company like General Electric, whose tax rate is 3.6 percent, with Target, which has an effective tax rate of 37.2 percent. G.E.’s impressively low tax rate is primarily due to low-tax foreign profits, rather than domestic tax breaks.

In his Congressional testimony, Mr. Sullivan explains:

    [L]ow effective tax rates are common in industries like pharmaceuticals and computer equipment where it is easy to shift technology and manufacturing to low-tax jurisdictions. In industries where customer markets and the provision of services are largely domestic, the opportunities for reducing taxes through cross-border profit shifting are limited.

Companies in those industries where profit-shifting abroad is easier are also more likely to invest in work forces abroad — which is yet another reason why it may be especially timely for Congress to take up a corporate tax overhaul.