By Kyle Pomerleau and Grant M. Seiter

The Biden administration and Democratic lawmakers in
Congress are now considering proposals to raise the tax burden on corporations
in the United States. In a new AEI report, which will be released in full next
month, one of us (Pomerleau) compares the US corporate tax burden under current
law, the Biden administration’s proposal, and the House Ways and Means proposal
to corporate tax codes in 36 OECD nations. Here, we offer a preview of the
findings and introduce a web application that allows users to explore more of
the data and analysis.

Click here to open the interactive web application.

The report compares corporate tax burdens using three
measures:

• The statutory corporate income tax rate is
  the rate at which each dollar of corporate taxable income is taxed. Alone, it
  does not fully capture the total tax burden on corporations, but it does
  reflect the attractiveness of locating profits in a jurisdiction.
• The marginal effective corporate tax rate
  (METR) measures the tax burden on marginal investment for an investment
  that breaks even in present value. The METR incorporates deductions, credits,
  and special lower tax rates afforded to corporations. It measures the impact a
  corporate tax has on the level of investment in a jurisdiction.
• The average effective corporate tax rate
  (AETR) measures the tax burden on new investments that earn above-normal
  returns or economic rents. Like the METR, the AETR incorporates deductions,
  credits, and special lower rates. This rate, however, measures the impact a
  corporate tax has on the incentive to locate investment in a jurisdiction.

Under current law, the United States statutory corporate tax
rate of 25.8 percent (21 percent federal statutory rate plus the average of
state and local corporate tax rates) is slightly below the OECD average
(weighted by GDP) of 26 percent. The METR on corporate investment in the United
States, under current law, is 18.3 percent, 2.9 percentage points higher than
the OECD average. The AETR in the United States is 23.4 percent, which is roughly
in line with the OECD average of 22.8 percent.

The Biden administration has proposed raising the statutory
corporate income tax rate to 28 percent, while the House Ways and Means
Committee has approved a proposal to raise the corporate tax rate to 26.5
percent. Lawmakers have also proposed reforming the tax treatment of foreign
profits of US multinational corporations and repealing or reforming the low tax
rate on foreign-derived intangible income (FDII). Their goals are to increase
federal revenue, increase the tax burden on capital income, and reduce profit
shifting by US multinational corporations.

The Biden and House proposals would raise the statutory and
effective tax rates to either the highest or nearly the highest in the OECD (see
the table below). Both proposals increase the tax burden on domestic corporate
investment, reduce the incentive to invest in the United States, and increase
the incentive to shift profits and high-return assets into low-tax jurisdictions.

The web application provides additional context, such as how effective tax rates vary by type of asset within OECD countries and how corporate tax codes treat debt and equity-financed investment. The application also allows users to explore how the effective tax burden on investment in the United States would differ if lawmakers permanently extended temporary provisions, such as bonus depreciation and research and development expensing, which are scheduled to phase out over the next decade.

Click here to open the interactive web application.

The post How would the US corporate tax burden compare with those of other developed nations? appeared first on American Enterprise Institute – AEI.