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Analysis Shows GAO Got It Wrong on the Corporate Effective Tax Rate

Oct 22, 2013

The media were quick to report as fact the surprising claim of a GAO study last May that U.S. companies paid an average effective tax rate far below the 35 percent statutory rate.  The Business Roundtable didn't believe the results then and noted our own concerns in a letter to Ways and Means Chairman Dave Camp and Senate Finance Committee Chairman Max Baucus.  Our own report published a few years earlier found American companies on average face one of the highest global effective tax rates in the world.

Now comes an in-depth analysis of the GAO report published yesterday in Tax Notes by Drew Lyon of PwC. He finds that extending GAO's analysis to the entire period for which comparable data are available (2004-2010), U.S. companies in aggregate faced a worldwide effective tax rate in excess of 35 percent, far higher than that found by GAO for 2010 . Even limiting the analysis to the three most recent years (a period that may be unrepresentative due to the large losses carried forward from the 2007-2009 recession), companies with positive taxable income paid an average worldwide effective tax rate of more than 30 percent. And as for the 2010 rates cited by GAO, it turns out they omitted most foreign taxes in their computation of the worldwide effective tax rate, dramatically understating the actual effective tax rate in that year.

American companies face high statutory tax rates and high effective tax rates relative to their competitors from around the world. In addition, the outdated U.S. tax rules on international operations make it difficult for American companies to expand into foreign markets and penalize American companies for investing their foreign earnings in the United States. Comprehensive tax reform is needed to eliminate the competitive disadvantage imposed on American companies, allowing them to expand jobs at home and grow the U.S. economy.