Curtis Dubay Curtis Dubay
Chief Economist, U.S Chamber of Commerce


June 24, 2021


Tax analysis is hard, which is why it’s usually best to leave it to the professionals. When amateurs try to pose as economists, accountants, and lawyers bad things happen. Reuters reporters did the posing this time, and the expected biased analysis resulted.

The Reuters article, which conveniently makes the case the White House wants on raising corporate taxes, 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, in fact.

The recently released Reuters' analysis is of only the largest 52 U.S. multinational companies. In 2019, there were 2.15 million corporate tax filers. That works out to 0.002% of all corporate filers. An infinitesimal small fraction of companies is hardly a representative sample when trying to assess how much taxes businesses pay.

Reuters' also used data from 2020, 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 as a way to provide relief to the virus-stricken economy. This odd choice of timing further skews an already biased analysis.

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

The biggest flaw in the Reuters' analysis is that it made the amateur mistake of using financial returns to analyze business taxes. As the Tax Foundation explains, financial statement data is different from tax information. They use different standards and measure different things. Analysts should never use them to make a statement about a business’ tax liability.

Financial statements use accounting principles to measure the financial wellbeing of a business in a way that makes it possible to compare businesses to one another. This is key: They do not measure taxes out the door in the way an actual tax return would.

Tax returns are private (or at least are supposed to be). It is incredibly difficult to piece together how much any company actually pays in taxes in any given year. Which is why the pros typically refrain from analyzing tax policy through the lens of a particular business’ tax bill or even a group of them.

The truth of the matter is that what effects investment decisions, and therefore where businesses ultimately locate jobs, is the marginal effective tax rate. That’s the extra tax on the next dollar of investment. Reuters' calculation is an average tax rate. Average tax rates tell us little about location decisions. The marginal effective rate is heavily influenced by the statutory rate, which President Biden wants to raise sharply.

Everything is relative in economics. When tax reform 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 it to 28% would make it a less attractive place for businesses to invest. It really isn’t more complicated than that. The question for Congress and the President is why would we want to make the U.S. a less attractive place for businesses to invest?

It’s also important to remember that tax reform broadened the corporate tax base significantly because it raised lots of taxes on businesses. The rate reduction more than offset those increases. but that means raising the rate now hurts the economy more than it would have prior to tax reform. This is why the Biden administration should not get away with saying that the 28% rate would be lower than it was before tax reform. That’s an apples-to-oranges to comparison.

The Reuters' story also argues the U.S. has generous deductions for things like research and development which lowers taxes. But that’s the point! Deductions for things like research and development incentivize our businesses to take risks that allow them to come up with things like lifesaving vaccines in record amounts of time. Our economy’s dynamism is the envy of the world. Raising taxes on our businesses will dull that dynamism.

At the end of the day taxes matter because they change incentives. Analysts can run the numbers a million different ways but it won’t change the basic fact that raising taxes on businesses compared to where they are now will make it less attractive for businesses to invest here, which will end up hurting American workers. No need to complicate the matter further.

About the authors

Curtis Dubay

Curtis Dubay

Curtis Dubay is Chief Economist, Economic Policy Division at the U.S. Chamber of Commerce. He heads the Chamber’s research on the U.S. and global economies.

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