Taxes: If you only read the Wall Street Journal, you might think they are the biggest problem in America right now.
The WSJ, for example, has run two news stories in the past two days about companies straining against the bonds of outrageously high U.S. corporate tax rates.
On Tuesday, the WSJ wrote that U.S. manufacturers want lower tax rates, citing a study by the University of Calgary's School of Public Policy that declares U.S. manufacturers have a "typical marginal effective tax rate" of 35.6 percent, the highest in the Organization for Economic Co-operation and Development.
On Wednesday, the WSJ had a story about a handful of companies that have just had enough of all this egregious taxation and are abandoning America for countries that will tax them less. This story asserted that the U.S. has an overall corporate tax rate of 35 percent, the highest among developed nations, this time without bothering to give a source. It takes the additional step of noting that Ireland's tax rate is 12.5 percent -- even stupid little Ireland has a lower tax rate than the U.S., gah, the story says (I am paraphrasing).
First, about that "typical marginal effective tax rate" in the Tuesday story about manufacturers -- it's not a real tax rate. It's designed to measure the attractiveness of investing in a country. Unfortunately, the WSJ doesn't link to the study it cites, and the University of Calgary's School of Public Policy could not identify the source for the 35.6 percent number. The school did publish a paper in 2011, which calculated a 2010 marginal effective tax rate for U.S. manufacturers of 32.7 percent. That rate may have changed a bit because of inflation, but probably not by much.
In any event, this "marginal effective tax rate" number shouldn't be compared to actual tax rates, because it's really designed to be a measure of incentives for business investment, taking tax rates mandated by law and adjusting them for stuff like depreciation allowances.
Update: Extraordinarily boring mystery solved: The School of Public Policy has done more investigation and discovered the 35.6 percent number comes from a presentation it recently made on Capitol Hill. There's no link. What's more, that number is the METR for all industries, not just for manufacturing, which is 33.9 percent. The school says it made a mistake and gave the WSJ the wrong number. Anyway, as I said, these METR numbers are apples, other tax rates are oranges.
In any event, big numbers like these -- let's just go with 35 percent -- have brought this over-taxation meme dangerously close to becoming accepted Conventional Wisdom. Even President Obama, apparently engaging in a rare new form of socialism, has proposed lowering the corporate tax rate to 28 percent from 35 percent.
The small hitch in that plan, as The Huffington Post's Alexander Eichler pointed out, is that U.S. companies actually already pay much less than 28 percent in corporate taxes.
The trouble here is in how you define the corporate tax rate. The rate cited on Wednesday by the WSJ is based on an OECD measure of statutory tax rates. These are the rates the laws of the land prescribe, but companies manage to find ways to skirt those laws, between loopholes and various tax subsidies.
In fact, the two companies profiled in Wednesday's WSJ story each paid less than 35 percent in taxes when based in the U.S. One company, Aon, paid 28 percent, on average, over the past five years before fleeing to the U.K. The other, Ensco, paid 19 percent in 2009, before it left the U.S. for the U.K., where it now pays a 10.5 percent rate.
And even as Obama was coming up with his proposal to cut corporate tax rates, the Congressional Budget Office pointed out that corporate tax receipts as a percentage of corporate profits tumbled to just 12.1 percent in fiscal 2011, the lowest rate since 1972.
Obama has proposed closing some of the loopholes that let companies pay lower rates than 28 percent, which is one reason businesses aren't exactly throwing parades over his plan to lower the statutory rate. In fact, one company mentioned in the WSJ story, Rowan Cos., says it is leaving the U.S. because of its fear of loophole shrinkage.
The problem here is that tax rates will never be low enough for any companies. Some of the same companies that pay no taxes are among those complaining most loudly about taxes.
Nobody really enjoys paying taxes, and it's only natural -- maybe even a duty to shareholders -- for companies to constantly try to pay less. But we've got to call them out when they try to snow us with fake numbers.