But these breaks are only one reason why the statutory rate tells less than the whole corporate tax story. It turns out that more than half of taxable business income in the U.S. is earned by pass-through companies such as partnerships and S corporations. Their owners pay individual taxes on this income, but owe no corporate tax at all.
Because this happens far less frequently elsewhere, it is very difficult to compare U.S. business taxes (either rates or payments) with those in other countries. Peter Merrill, a principal at the accounting firm of PriceWaterhouseCoopers, argues that the shift to pass-through companies may be the single most important reason why U.S. corporate tax revenues are so low.
Indeed, even though the U.S. corporate rate is the second highest in the world, corporate tax revenues amounted to only about 1.3 percent of Gross Domestic Product last year–less than half the average among major industrialized countries.
Because the corporate tax in only a piece of the U.S. revenue system, it is important to think more broadly about all taxes. And when you do, it is clear that Americans are hardly overtaxed, at least compared to the rest of the developed world. One reason is that the U.S.is about the only major industrialized nation that does not also have a Value-Added Tax or national sales tax. For instance, advocates for low corporate taxes love to talk about Ireland’s 12.5 percent combined corporate rate. But they usually don’t say much about Ireland’s VAT, which has a top rate of 21 percent. Indeed, those countries with the lowest corporate rates, such as the Slovak Republic and Poland, raise a big chunk of their tax revenue though a VAT, where their rates tend to be among the world’s highest. The money, they have learned, has to come from somewhere.