“In the United States, the top federal statutory corporate income tax rate (the rate set by law that applies to the highest corporate income tax bracket) has been 35 percent since 1993. Most corporate income is taxed at that rate. With state taxes added in, the top statutory rate is even higher; on average, that combined rate was 39.1 percent in 2012, among the highest in the world .
The statutory corporate tax rate is one of many features of the tax system that influence corporate behavior. Companies are likely also to consider other provisions of the tax system—including tax preferences, surtaxes, and noncorporate taxes—that affect the amount of taxes they owe. Among the alternative measures of tax rates that account for some of those provisions are the average and effective marginal corporate tax rates.
The average corporate tax rate is a measure of the total amount of corporate taxes that a company pays as a share of its income. CBO estimates that the U.S. average corporate tax rate for foreign-owned companies incorporated in the United States in 2012 was 29 percent—about 10 percentage points below the top U.S. statutory corporate tax rate.
The effective marginal corporate tax rate (in this document, the effective corporate tax rate), is a measure of a corporation’s tax burden on returns from a marginal investment (one that is expected to earn just enough, after taxes, to attract investors). CBO estimates that the effective corporate tax rate was 19 percent in the United States in 2012. That rate, the fourth highest among the Group of 20 (G20) countries, was about 20 percentage points below the top U.S. statutory corporate tax rate.
This chart book is an update and expansion of CBO’s 2005 report that examined statutory and effective corporate tax rates for the United States and member countries of the Organisation for Economic Co-operation and Development and the Group of 7 between 1982 and 2003. This report focuses mainly on the 2012 tax rates in countries that are members of the G20. CBO expanded the analysis to include average tax rates, which were estimated on the basis of information reported for income and taxes paid by corporations in a given year. For both this report and the 2005 report, effective corporate tax rates were derived from simulations based on certain features of the various countries’ tax systems.”