by Jack Mintz, Duanjie Chen
February 06, 2014
The statutory corporate income tax rate of the United States is infamously one of the highest in the world. And, although businesses’ effective tax rates are often lower than their statutory tax rates as a result of tax preferences, it is commonly understood among economists that effective tax rates follow the trend of statutory tax rates in the long run. Tax preferences narrow the tax base, and the combination of a narrow tax base and an otherwise unnecessarily high tax rate hurts business investment in general by benefiting only those investors who can use available tax preferences. This creates an uneven playing field, resulting in misallocation of capital and a more complex tax system to comply with and administer. The messy picture of U.S. effective corporate tax rates reflects the inefficiency of the tax system; it should not be used as an excuse for delaying its reform.