How Much Do U.S. Businesses Pay in Taxes? Trick Question!


What tax rate do businesses pay in the U.S.? It's hard to say. The nominal federal tax rate for large multinational corporations is 35% and with the added extra state taxes, it averages 39.2%. Among the developed countries of the world, in other words, we have the highest nominal tax rate. The difference between our nominal tax rate and the actual amount that corporations pay is huge, however, as a result of various tax code credits and shelters. Removing loopholes from the code and bringing the nominal tax rate down to the real tax rate would be beneficial for foreign companies that want to invest in the U.S., and for small American businesses within the U.S.who would then be able to compete with their enormous multinational peers. With a clear and low corporate tax, American businesses, big and small, would benefit, and as a result the economy would grow while the unemployment rate would decrease.

Regarding our tax codes, Senator Carl Levin (D-Mich.), chair of Senate Permanent Subcommittee on Investigations, has said, “Some U.S. multinational corporations like to complain about the U.S. 35% statutory tax rate, but what they don’t like to admit is that hardly any of them pay anything close to it... The big gap between the U.S. statutory tax rate and what large, profitable U.S. corporations actually pay is due in large part to the unjustified loopholes and gimmicks that riddle our tax code.” He's right. The largest of corporations use a variety of credits, shelters, deductions, and other preferences that essentially set the real tax rate at an average of 13%. In essence, the problem lies squarely on that huge difference between the "nominal rate" and the "real rate." Without a clear understanding of what real tax rates actually are, the American economic environment is misperceived and thus suffers. What Congress really must do is clarify and renovate the tax code from the inside out.

The U.S. Government Accountability Office has published a study that indicates there is also a huge difference in real tax rates among various corporations. With corporate tax rates, the highest in the world nominally, it only makes sense to create a system where the loopholes that benefit the multinational corporations are replaced by a simple tax code that benefit all American companies. America will be more competitive with the rest of the world, and it will be able to attract the kind of investment that it most desperately needs right now. Establishing a simple real tax rate will mean higher wages and more job creation. It’s as simple as that.