September 8, 2008
What's New?
A recent study shows that while America has left the major features of its business tax system unchanged over the past fifteen years, virtually all developed nations have lowered their corporate tax rates, potentially hurting the competitiveness of the United States.
In Tax Foundation Fiscal Fact No. 143, "Comparing International Corporate Tax Rates: U.S. Corporate Tax Rate Increasingly Out of Line by Various Measures," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., uses various methods to compare U.S. corporate tax rates with member nations of the Organization of Economic Cooperation and Development (OECD) and the G-7 countries.
"The U.S.'s combined federal-state statutory corporate tax rate (39.3%) is now well above the weighted average for both the member nations of the OECD (31.9%) and the larger G-7 countries (33.8%)," says Carroll. "Moreover, both groups of countries continue to lower their tax rates. Since the early 1980s, the weighted average corporate tax rate has fallen by 38 percent for OECD nations and 37 percent for the G-7 countries, not counting the U.S."
Read the Tax Foundation Fiscal Fact. Read the news release. For more on the problem of the U.S.'s high corporate tax rates, see the new CompeteUSA page.
Recent research on tax relief enacted in 2001 and 2003 shows that taxable income increased when top tax rates were cut. Though not sufficient to "pay for themselves," an exaggerated claim often made for tax cut proposals, the rate cuts in the top two brackets did induce taxpayers to report enough extra taxable income to offset between 25 and 40 percent of the static revenue loss.
In Tax Foundation Fiscal Fact No. 141, "The 2001 and 2003 Tax Relief: The Benefit of Lower Tax Rates," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., says this analysis is important when evaluating the tax proposals of the presidential candidates.
"Absent any action from Congress, the top tax rate will rise back to 39.6% when the 2001 and 2003 tax relief sunsets at the end of 2010," Carroll explains. "That would end an eight-year rate reduction that helped spur the economy in the longer term by improving the incentives to work, produce and save, and by reducing other economic distortions associated with high tax rates."
Read the Tax Foundation Fiscal Fact. Read the news release.
Following newly released OECD data that shows U.S. corporate income taxes are 50 percent higher than the OECD average, the Tax Foundation released a revised summary showing that the US federal corporate income tax quietly taps family pocketbooks for nearly $370 billion per year in the form of higher prices, lower wages and poorer return on investment.
The typical family focuses on the more visible taxes such as property taxes on homes, sales taxes on purchases, and personal income and payroll taxes. But in Tax Foundation Tax Watch, "What Do Corporate Income Taxes Cost American Families," Tax Foundation President Scott Hodge puts a price tag on the corporate income tax.
"Most people think corporate income taxes are paid by wealthy, anonymous companies," said Hodge. "But as economists have been teaching for years, ultimately people bear the burden of corporate taxes, not companies. And in 2006 that burden averaged $3,190 per household. That's more than the average household spends on restaurant food, gasoline or home electricity in a year."
Last week, the Tax Foundation launched the CompeteUSA campaign whose goal is to raise the public's awareness of the burden America's business taxes may place on workers through lower real wages and living standards than would have occurred otherwise.
Learn more about CompeteUSA. Read the Tax Watch report.
In a friend-of-the-court brief filed with the Texas Supreme Court, the Tax Foundation is urging the reversal of a Comptroller's ruling imposing additional taxes on insurance companies from other states.
Joseph Henchman, tax counsel for the Tax Foundation, argues that allowing the Comptroller's ruling to stand will force other states to raise their tax rates on Texas insurance companies, setting off an interstate tax war and ultimately harming consumers.
"Failing to overturn the Comptroller's ruling will ultimately set off a chain reaction of tax increases on out-of-state insurance companies until no insurance companies do interstate business at all," explained Henchman. "These tax increases would ultimately be imposed on consumers paying higher prices, shareholders receiving lower dividends, and employees receiving reduced wages."
Read the brief. Read the Tax Foundation Fiscal Fact on the brief. Read the press release.
More amicus briefs filed by the Tax Foundation.
The presidential campaign of Sen. Barack Obama today clarified their proposal to eliminate all income taxes for seniors making under $50,000, after a new economic analysis from the Tax Foundation criticized the plan for being nearly impossible to implement.
In Tax Foundation Fiscal Fact No. 140, "Obama's Income Tax Cliff for Senior Citizens," Tax Foundation analyst Mark Robyn examined the presumptive Democratic presidential nominee's plan to provide some relief to low-income seniors, and found that Obama's plan throws taxpayers directly into the 15% bracket as soon as they cross the $50,000 threshold, making them fully liable for income tax on all of their taxable income, suddenly slamming the taxpayer with a substantial tax bill and reducing his after-tax income well below what it would have been if his income had never increased.
After Foon Rhee of the Boston Globe reported Robyn's analysis on his blog, "Political Intelligence," the Obama campaign responded by saying that his plan does actually include a phase-out of the tax break, so that the tax bill would rise gradually above $50,000 in income and there would be no "cliff."
Read the Tax Foundation Fiscal Fact. Read the news release. Read the earlier news release.
An economic analysis of Barack Obama's tax relief plan for senior citizens finds that it would create an "income tax cliff" that would be excessive and unfair to many over 65.
In Tax Foundation Fiscal Fact No. 140, "Obama's Income Tax Cliff for Senior Citizens," Tax Foundation analyst Mark Robyn examines the presumptive Democratic presidential nominee's pitch to eliminate all income taxation for senior citizens making less than $50,000 per year, and finds that Obama's plan does not address the question of what happens when income crosses above that threshold.
Read the Tax Foundation Fiscal Fact. Read the news release.
