The site NerdWallet.com set out to answer that question, as well as questions about income disparities between low earners and high earners within companies (I’ll get to that in a future post). They’ve built a sweet interactive tool, as well as a solid write-up about corporate tax rates.
Some key insights:
The corporate tax rate in the US is 35%, which is the highest among all large industrialized nations. Here’s the chart:
This is why both Obama and Romney want to lower the corporate tax rate (the Prez to 28%, Romney to 25%). Both say that the current high rate encourages companies to move their operations to other countries, decreasing our tax base and eliminating jobs in the US.
But wait: the majority of companies don’t pay anything close to this 35% rate:
“Statutory” is what’s in written into law, “reported” is what’s owed based on company calculations, and “paid to US” is, well, you can probably guess. So why the huge disparities?
Well, the difference between statutory and reported really comes down to the special credits and deductions that companies receive, for things like manufacturing domestically, R+D, tax-exempt interest, etc. The difference between reported and paid to US comes down primarily to one thing: reported includes tax payments to foreign governments. (Accounting and tax timing issues also contribute to this gap, but they should resolve themselves year-over-year.)
So here’s the real goal of both Obama and Romney’s plans:
- Simplify the tax code to eliminate the credits and deductions that create a gap between statutory and reported.
- Then cut the statutory rate to encourage more companies to keep their operations here in America. This would close the gap between reported and paid to US, so ironically a lower tax rate would actually raise more tax revenue. That’s the theory, anyway.
So what’s my favorite company paying?
Again, from NerdWallet, here’s the tax rate that some of our biggest companies actually paid to the US government in the most recent year*:
So, bottom line:
- US-based retailers tend to pay closer to the full 35%.
- Companies with high R+D expenses (think high-tech firms) or broad international sales and operations (PepsiCo and Coca-Cola) tend to pay far less.
- Citi and ExxonMobil live down to their reputation.
* This is actual tax payments divided by total company income.
** Citigroup was one of 40 of the 500 largest companies that received a refund despite earning positive profits (in Citi’s case, a shade under $15B in profits).