Problems with American Corporate Tax Code


There is no doubt that the corporate tax system in the United States quickly needs a reform. Corporate tax revenues are much lesser than peer countries. The system is believed to be unfair due to it being extremely complex and full of distortion. Many corporate hold the opinion that the present system inhibits competitiveness by holding back the US companies. Not all grudges against the corporate tax code are true. There is no evidence that the system is rigged against US company competitiveness. To fix the code, it is imperative to find which criticisms of the code are valid and accordingly act upon them.

Evasion specialists

In addition to American companies being global leaders, they also lead in worldwide tax avoidance. This fact has given rise to multiple European countries that they are getting cheated of payable tax revenues. Officials of the European Union have argued that American multi-national corporations were recipients of huge tax relief amounts from the European Union member states. The pro-active use of corporate loopholes has led to a few American companies to pay taxes in single digits. A number of American multinationals give at an effective rate much lower than the statutory rate inside the EU.

Oddities in tax system

To any lay observer, the corporate tax system in the United States has two oddities. The first oddity is that the tax rates are comparatively steep at 35 percent. The second oddity is that the United States has a global system, meaning it levies a tax on those profits which are made outside the US. Other countries follow the “territorial” system where foreign income is not subjected to tax. On a superficial level, it seems that American companies are taxed at much steeper rates on their income. This should not be done. On the contrary, the “effective” or actual rate tax paying American companies are much lower than the statutory 35 percent, pushing the US to the company of other tax receiving nations. American companies do not have to pay taxes on the debt-financed instruments. This can be counted as a subsidy.

To put it short, companies enjoy much lower taxes for all practical purposes compared to theory. US multinational companies are also extremely competitive. Post-tax profits are now extremely high. It is no wonder that American companies dominate the Global 2000 list brought together by Forbes. This is true across all major parameters like profits, market capitalization, assets or sales.

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