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I have seen plenty of arguments and articles claiming that companies pay significantly below statutory tax rates. This Forbes article claims that number was around 15%. But then I see articles like this MarketWatch one that lets you see the effective taxes on S&P 500 companies, which shows a median effective tax rate at about 30%. This is a huge discrepancy.

Now obviously they will be using different methodology to skew the data favorably to their message, but which of these claims is more right in regards to the big picture in the US? Are companies in the US paying high or low taxes on average?


Note: This question is related, but focus on the special case companies like GM that pay very little, and focuses on how they whittle the taxes down. I'm asking about the common claim of low effective corporate tax rate for the whole of the American Market. I'm not so interested in special cases, but more in averages and characteristics of taxes in the context of the potential upcoming tax bill in 2017.

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    Forbes links to its data source, the Government Accountability Office, which describes their data collection methods and analysis methods in detail. By contrast I am having a very hard time reading the MarketWatch article. I have no idea how they are calculating their rates. I can't tell if they are comparable to the tax rates calculated by the GAO or not. – BobTheAverage Dec 6 '17 at 21:15
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    TBear I saw that. That description is completely insufficient. – BobTheAverage Dec 6 '17 at 21:57
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    @DanielRHicks VAT is manifestly not a corporate tax. Unless all sales taxes are also corporate taxes, which is an absurd way to describe them. – matt_black Dec 7 '17 at 11:42
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    Forbes is claiming that the average (mean) rate is 15%, and MarketWatch is claiming that the median rate is 30%. There is no mathematical contradiction between those claims. This is what you would see, for instance, if there were a few firms paying a much lower rate than the others (particularly if the average is weighted by firm size or income, which would be natural, and the low-tax firms are large). It's not really sensible to ask which of a mean and median is "more right"; they simply summarize the data in different ways. – Nate Eldredge Dec 7 '17 at 14:57
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    I don't see this as a duplicate. The other question asks if there are individual companies that pay zero (or very little) tax. This question says it doesn't care if there are. It wants to know what the effective tax rate is across all companies. They are related but not that similar. – Brythan Dec 7 '17 at 19:46
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There is a lot of confusion about effective tax rates but the consensus is that the effective rate in the USA is in the 20-25% range

The trouble with almost any article that quotes an effective tax rate is that there as a lot of different ways to calculate it so there are rather too many ways to get the result you want other than a truly representative result.

There are many reasons why the headline number (35%) is not the same as the actual tax paid. The US code has vast number of deductions and allowances that allow corporations to write off certain types of expense. Overseas earnings are only taxable if repatriated.

For example, do you count all public corporations or just the profitable ones; do you count just big corporations or all sizes; do you count only multinationals or just domestic firms; do you count just federal taxes or all corporate taxes? These choices make big differences to the result.

The Forbes article quoted in the question quotes several different calculations but the most relevant to tax policy is for profitable large corporations and actually has a range from 20-25% (not 15% as the question quotes). The result is baes on analysis by the Government Accountability Office who explain some of the issues fairly clearly:

In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability. Larger corporations were more likely to owe tax. Among large corporations (generally those with at least $10 million in assets) less than half—42.3 percent—paid no federal income tax in 2012. Of those large corporations whose financial statements reported a profit, 19.5 percent paid no federal income tax that year. Reasons why even profitable corporations may have paid no federal tax in a given year include the use of tax deductions for losses carried forward from prior years and tax incentives, such as depreciation allowances that are more generous in the federal tax code than those allowed for financial accounting purposes.

These reasons also explain why corporate effective tax rates (ETR) can differ substantially from statutory tax rates. ETRs attempt to measure taxes paid as a proportion of economic income, while statutory rates indicate the amount of tax liability (before any credits) relative to taxable income...

The same report summarises the results:

When foreign and state and local income taxes are included, the average ETR [for profitable large corporations] across all of those years increases to just over 22 percent.

Over tax years 2008 to 2012, all large corporations—profitable and those that reported current year losses—paid 25.9 percent of their pretax net income in U.S. federal income taxes...

We can check whether these numbers seem reasonable by comparing them to the specific tax rates for single real firms. Investopedia did this for tech giants in 2016 and found:

Apple Inc. had an effective tax rate of 26.4% in 2015, 26.1% in 2014 and 26.2% in 2013. This was neither the highest nor the lowest among mega-cap technology companies based in the United States. Many factors can influence effective tax rates, but research and development tax credits and geographical profit mix are especially relevant for large tech firms.

Alphabet Incorporated's rate was significantly lower, ranging from 16.8% to 21.1%. Intel Corporation's effective tax rate was also lower at 19.6% in 2015, 25.9% in 2014 and 23.7% in 2013. ... Microsoft Corporation's effective rate was highly variable, swinging from 21% in fiscal 2014 to 34% in fiscal 2015.

Note that effective tax rates can look higher when firms make overseas losses (Amazon's effective rates in the USA look really odd because of this). But the important point here is that the GAO estimates for large firms seem to be reasonably comparable to what the public accounts of some of these large firms actually report.

This suggests that the meaningful number to quote is somewhere between 20-25% as the GAO suggests.

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