Quote:
Originally Posted by Flames Fan, Ph.D.
Yes, I understand your comment regarding the corporate tax very well.
What I'm saying is that the statutory rate is basically irrelevant because very few corporations pay the statutory rate. The effective rate is what matters. If you believe the effective rate is too high, then that is another matter.
Here is another set of data from the cbo showing that the effective corporate tax rate is low 20s and is at or below the median level of the G7 over a 20 year span up to 2002. Rates have only gone down since.
If you're going to start a business, then you would be interested in what net taxes you would pay when all is said and done. Not the statutory rate.
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I still think the comparison of tax revenues to GDP is the best comparator across nations (see table on page 13 of above link). In this comparison it's quite clear that corporations in the US are far from overtaxed. |
I'm going to disagree with you. When I'm talking corporate tax I'm talking pure corporate tax. The statutory rate does matter very much. I don't want to get too technical on taxes, however, I'll throw out an example.
A company makes 17,000,000 of net income for accounting purposes during the years 2011 & 2012. Some components that make up the companys net income for both years are:
book depreciation of $2,500,000
Meals & entertainment of $100,000
The value of the assets being depreciated is $5,000,000. Lets say that the company won't be buying additional assets or selling these assets and that after 2 years the assets will be fully depreciated.
There is a reconciliation process that must be done to arrive at taxable income because the treatment of the two above mentioned deductions are treated differently for tax than for accounting purposes (there are a lot of variations of different temporary & permanent differences but I'm trying to keep the illustration simple). For the illustration lets say the tax depreciation expense is $3,500,000 for 2011 and $1,500,000 for 2012. Therefore, for tax purposes there is a $1,000,000
temporary difference in 2011 and the company will receive an additional $1,000,000 deduction in that year but that will reverse in 2012.
If there were no tax book differences and you applied the tax rate of 39% you would arrive at taxes in each year of $6,630,000
To arrive at the taxable income you have a reconciliation like this:
2011
Book Income: $17,000,000
Tax depr diff: (1,000,000)
Meals & Ent. 100,000
Tax Income $16,100,000
Tax Rate 39%
Taxes $6,279,000
The effective rate in this case is (6,279,000/17,000,000) 36.9%
2012
Book Income: $17,000,000
Tax depr diff: 1,000,000
Meals & Ent. 100,000
Tax Income $18,100,000
Tax Rate 39%
Taxes $7,059,000
The effective rate is (7,059,000/17,000,000) 41.5%
When tax is ultimately calculated it still comes back to the statutory rate. If you doubt me take a look at the
US corporate tax form and
US corporate tax instructions. Schedule J on the corporate tax form (pg 3) is where the corporate tax is calculated. To actually do the calculation you would need the tax rate schedule which can be found in the instructions on page 18.
I have no clue as to how you can say the statutory rate is irrelevant when this is the rate that is used to calculate every corporations income tax.