Corporate Tax Fate May Hinge on Modeling Omission

The dictum that each side of a debate should not be entitled to its own facts is not being observed in the corporate tax discussion. Advocates of lower corporate income tax rates focus on the relatively high corporate statutory rate, while proponents of the status quo or higher corporate effective tax rates (ETRs) point to studies and SEC filings showing that the U.S. federal corporate ETR applicable to worldwide income tends to be in the 10 percent to 20 percent range.1 But the tax rates that any serious reformer has no choice but to consider are the rates faced by taxpayers reflected in the Congressional Budget Office, Joint Committee on Taxation, and the Treasury Office of Tax Analysis distribution tables.2 While not a formal legislative procedural requirement, in practice, a major tax bill can’t be enacted without addressing distribution consequences. Current distribution tables used for tax policy and broader studies of inequality and mobility include embedded federal corporate ETRs of 40 percent or more, which is higher than most ETR studies find and greater than the U.S. statutory tax rate.3