Smartmoney: US corporations are NOT heavily taxed; tax code should be simplified

Igor Greenwald, writing for Smartmoney.com, says that despite rhetoric, American corporations do not face high tax rates compared to others in Western nations. True, the tax brackets may seem high, but corporations are getting a lot of tax breaks.

IF YOU SAY SOMETHING long enough and loud enough, there's every chance people will come to believe it's true, especially if your opponents tire of rebuttals.

This time-honored political strategy has been working overtime of late, as Republican presidential hopefuls romance the richer Florida retirees with appeals for cuts in corporate taxes.

You may have heard: U.S. corporations face one of the highest income tax rates in the world, though the mention of "rate" is often enough excised, so that what comes through is the assertion that corporations pay too much in taxes. This is simply untrue if your basis for comparison is the developed world. The truth is that while the 35% corporate income tax rate is high indeed, the creativity and global reach of U.S. corporations make them among the most lightly levied.

Between 2000 and 2005, U.S. corporate taxes amounted to 2.2% of the GDP. The average for the 30 mostly rich member countries of the Organization for Economic Cooperation and Development was 3.4%.

Why the disparity given the high federal rate, which rises to 39% counting state taxes? Part of the answer is that big U.S. companies have become expert at hiding profits in tax havens overseas. And many of the smaller ones simply pass through their income to owners who then report it on their personal returns.

According to one analysis, if so much corporate income hadn't moved to the personal tax rolls over the last 20 years, U.S. corporate taxes would account for 3.2% of the GDP, still a bit below the OECD average. "Usage of pass-through forms of business organization can be viewed as a form of 'self-help' corporate tax integration," writes Peter R. Merrill, a partner at PricewaterhouseCoopers.

Greenwald says that the tax code is excessively complex. This is to the benefit of tax lawyers, and to the detriment of everyone else, including ordinary citizens. Simplifying the tax code, and eliminating a lot of income shelters, while also reducing top tax rates, could benefit everyone. He contends that effective US corporate tax rates peaked at 32% in 2000, but declined to 25% in 2005. Sweden charges 28%. Perhaps this should cease being a left/right issue.