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Corporations are the US' Smallest Source of Tax Revenue

December 6, 2014

The smallest source of U.S. tax revenue in 2011 was the corporate income tax, from with federal, state and local governments collecting about 10% of total tax revenue, according to a study issued last week by the Tax Foundation.


That figure is essentailly the same as the rest of the Organisation for Economic Co-operation and Development (the OECD is a group of 34 free-market economies including most European countries and the United States) average of 9%, according to the study, “Sources of Government Revenue in the OECD, 2014,” which relies on the most recent OECD tax data available.


The negligible difference appears to punction the popular contention among US businesses that US corporate taxes are higher than that of overseas countries, unless one considers tax havens such as Ireland, Luxembourg, and a number of semi-autonomous territories with tax-friendly jurisdictions. General Electric has been one of many large  U.S. multinationals that have used tax-juirisdiction engineering to significantly diminish their U.S. tax bills. 


The study also finds sharp differences in the mix of taxes levied by the United States and that collected by the OECD, with the United States showing a much steeper reliance on income taxes. Overall, most of the 34 OECD countries rely more on tax revenue from consumption taxes than other kinds of taxes, according to the foundation, a non-partisan research think tank based in Washington, DC.


In contrast to the entire OECD, which averaged 24% of revenue garnered via individual income tax, the United States took in 37% of overall tax revenues from individuals income tax in 2011.


Althouth the Tax Foundation lauded the OECD practice of relying on consumption taxes over that of income taxes for revenues as being more economically friendly, we can't help but observe that OECD countries rely heavily on regressive taxation like the VAT (value-added tax--similar to sales and use taxes in the US), while the US relies more on progressive taxes like graduated income and property taxes. Regressive taxes tend to penalize lower income taxpayers over that of progressive taxes, which rely more heavily on higher income taxpayers.



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