Effective Corporate Tax Rate and Rent-Seeking: An International Comparison with the US

Current corporate tax reform debates focus on whether or not to lower the US top rate of 35 percent to match other developed countries’ rates, and whether large corporations paid their fair share. Anecdotal evidence indicates that large US corporations engage in rent-seeking. This descriptive study examines the corporate effective tax rates and compares the US rates with the rates of six foreign countries. Results show the mean corporate effective tax rate of the US is significantly lower than that of six other OECD countries even though the statutory rates of the foreign countries are lower than the US. As a group, the mean effective tax rate of the 99th percentile of US firms does not significantly differ from that of other US firms, and the price-earnings association is not valid for 99th percentile of US firms because earnings are not earned productively but through rent-seeking. Consideration must be given to the percentage of actual taxes that US corporations pay, as well as the statutory rate, when reviewing future tax policy.