Federal Corporate Taxation

For my “White Paper” I plan on looking at Corporate Taxation in the United States. Corporate taxation is the process of taxing business entities that are classified as a corporation. The United States, with a corporate tax rate of 35%, taxes corporations more than almost every other country. In the United States, corporate taxation has come under fire for being inefficient and detrimental to the growth of business. On the other side of the argument, corporate tax has drawn criticism because of how avoidable it is. Deductions and loopholes results in a much lower tax rate paid by US corporations that is nowhere near 35%

I have found a lot of good information surrounding both sides of the argument, including data from reputable news sources that provide a variety of different views on the topic. I think this is a rich topic because of how central it is to the current election and because there are so many different ideas for changing it. I personally think we need to change the current taxation policies on corporations to help foster economic growth in the United States by making it more supportive of US based corporations.

One of the biggest issues is with the non-territorial taxation policy. If US corporations have businesses in foreign countries, they are required to pay the respective foreign countries’ tax rates. To bring that money back to the United States, they are required to pay the difference between the foreign tax rate, and the tax rate in the United States, which is almost always higher. This has led to companies reinvesting their earnings in their foreign operations, and investing less of that money in the United States.

Some statistics and facts I have gathered:

  • The top federal corporate tax rate in the United States is 35%
    • The effective rate is closer to 40%
    • Of the companies in the S&P 500, 115 paid less than 20% in taxes
    • The United States has the highest effective tax rate among developed countries
    • An estimated $1.5 trillion has been stored in offshore in countries with low tax rates
    • The current annual deficit is $1.089 trillion
      • The current annual tax revenue is $2.2 trillion
      • Annual corporate tax revenue is $198 billion, or 9% of all tax revenue
      • GE has mastered tax avoidance, with a tax department that employs 975 lawyers and accountants
      • International American companies provide 22 million jobs within the US, and indirectly provide 41 million.
      • International American companies also buy on average $3 billion in goods and services from small US businesses.
      • With globalization dramatically increasing, the high corporate tax rate is risking the future of business in America
      • Exxon Mobil, the most profitable US Corporation, paid an effective 2% tax rate to the US in 2011
        • Instead the company paid $28.8 billion in taxes to foreign governments

What excites me most about this paper is the ability to direct it in multiple ways. From a preliminary view, my opinion is that there is a two-fold fix to corporate tax code. The tax rate needs to be decreased to invite more incorporation in the US, and loopholes need to be closed so that companies are paying more realistic rates. Additionally, I think the government should consider a territorial taxation policy which would allow for more development and investment in the United States.












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