Jun 24, 2021 - 11:30am

Reuters is Wrong. A Higher Corporate Tax Rate Would Hurt Our Economy.

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The Internal Revenue Service headquarters in Washington, D.C.
The Internal Revenue Service headquarters in Washington, D.C.

Reuters article purports to prove that U.S. businesses pay lower taxes than their foreign competition and would continue to do so even under President Biden’s proposal to raise the corporate rate to 28% from the current 21%. It does no such thing. 

There are serious problems with their analysis. 

1. It covers only a fraction of the largest 52 U.S. multinational companies 

In 2019, there were 2.15 million corporate tax filers. That works out to .002% of all corporate filers. A minute fraction of companies is hardly a representative sample when trying to assess how much taxes businesses pay. 

2. 2020 data was used 

This was the most unusual year for economic and financial data ever because of the COVID-19 pandemic. There were several new provisions added to the tax code last year that lowered taxes to provide relief to the virus-stricken economy. Those provisions were intended to lower taxes.  

The U.S. taxes businesses on their average income over several years. To get a more accurate picture you need to look at more than a single year of a business’ tax bill.   

3. It used financial returns to analyze business taxes 

As Tax Foundation explains, financial statement data is different from tax information. They use different standards and measure different things, and they do not measure taxes in the way an actual tax return would. 

4. It focuses on the wrong tax rate 

Reuters calculated an average tax rate, but what effects investment decisions and where businesses ultimately locate jobs is the marginal effective tax rate–the extra tax on the next dollar of investment. The marginal effective rate is heavily influenced by the statutory rate, which President Biden wants to raise sharply.  

When the 2017 tax reform law lowered the corporate tax rate to 21% it made the U.S. a much more attractive place for businesses to invest, because it lowered that all important marginal effective tax rate substantially. If Congress passed President Biden’s proposal to raise the corporate tax rate to 28% it would make the U.S. a less attractive place to invest. 

Bottom line: Taxes matter because they change incentives. Raising taxes on businesses will make it less attractive for them to invest here, which will end up hurting American workers. 

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