Who 'Wins' Under Our Bizarre and Complicated Corporate Tax System?

"More holes than cheese" is how some experts describe corporate taxes, which the White House wants to overhaul as part of its new competitiveness campaign. The United States has the highest corporate tax rate in the world (besides Japan) at 35%. But many companies pay an "effective rate" considerably lower, in the teens in even the single digits, because they take advantage of loopholes or move their business overseas where earnings are taxed at a lower rate.

The president wants to fix this. A lower corporate ax would mean more business in the U.S., more jobs in the U.S., and maybe even more revenue from domestic business going to the government. "Get rid of the loopholes," he said in his State of the Union. "Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years -- without adding to our deficit. It can be done."

Good luck. The problem with "leveling" the playing field is "filling" the holes is that you might raise taxes on companies who benefit from the holes in the first place. Via Economix, here's a short list of average effective tax rates by industry. In a nut shell: Companies with high R&D spending or a large overseas presence pay very little, and companies that do business mostly inside the U.S. pay very high.




A simpler tax code with fewer holes would mean less variation in ETR. Electric utilities and biotech companies would pay a similar rate. But do we really want to raise taxes on biotech and drug companies, which are arguably our greatest competitive advantage? Do we really want to strip out loopholes that benefit domestic manufacturers at the same time that we call for higher exports? The loopholes in the corporate tax code has created a system of winners and losers that reform would could overturn.

That's just one reason why the debate about corporate taxes is much more complicated than the budget or deficit-neutrality.

Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

A New York City Minute, Frozen in Time

This wildly inventive short film takes you on a whirling, spinning tour of the Big Apple

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Faces of #BlackLivesMatter

Scenes from a recent protest in New York City

Video

Ruth Bader Ginsburg on Life

The Supreme Court justice talks gender equality and marriage.

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In