Profitable U.S. corporations paid an average federal effective tax rate of 12.6 percent in 2010, less than half the statutory rate of 35 percent, according to a study released today by the Government Accountability Office.
The GAO cited several possible reasons for the finding, including one-time benefits for capital investments made during the economic recovery and taxes paid to foreign and state governments. Companies’ effective tax rates were 13 percent in 2009 and 15.3 percent in 2008.
“This report underscores the need for comprehensive tax reform,” Senator Tom Coburn, an Oklahoma Republican, said in a statement. “We would be better off with a code that eliminated these loopholes so we can lower rates for both corporations and individuals.”
Coburn requested the report along with Senator Carl Levin, a Michigan Democrat, who said the report shows how “unjustifiable loopholes and offshore gimmicks” shift the tax burden to families and small businesses.
GAO used data from tax forms, specifically the companies’ reconciliation of their income for accounting and tax purposes.
Effective tax rates are higher -- as much as 22.7 percent - - if money-losing companies are included in the calculation. That’s because those losses lower the total amount of income earned.
Lawmakers in both parties and President Barack Obama support changes to the corporate tax system that would reduce the 35 percent rate -- the industrialized world’s highest -- and curtail tax breaks to offset the lost revenue.
The U.S. collected $191 billion in corporate taxes in 2010, equal to 1.3 percent of gross domestic product, according to the Office of Management and Budget.
Corporate income tax collections peaked in nominal terms in 2007 at $370 billion. They dropped during the recession as companies’ profits shrank and Congress created tax incentives to encourage investment. They reached a bottom of $138 billion in 2009, according to OMB.