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America’s tax code is so famously byzantine that it’s difficult to even measure how riddled it is with loopholes. But Fox News’ Bob Beckel took a shot at doing this on The Five, during a discussion of corporate taxes with co-host Eric Bolling.
"We have a high corporate tax rate," said Beckel, but "we also have the most number of deductions available to corporations. They pay lower taxes than an awful lot of European countries do."
Bolling countered that the United States has "the highest corporate tax rate in the free world," which he said is why companies like Pfizer and Burger King "jumped ship" by relocating their corporate headquarters outside of the United States.
Beckel, however, stuck to his guns, repeating that the United States has "the highest number of deductions" and adding that companies leave the United States for cheap labor, not to evade taxes.
We checked Bolling’s claim separately. In this check, we will look at whether Beckel is correct that the U.S. tax code has the highest number of deductions.
The bad news for Beckel: Experts told us it’s neither practical nor useful to tally the number of deductions in the tax code, and that they hadn’t seen any study that tried. PolitiFact, our sister site, checked a claim in 2013 that "there have been literally hundreds of new tax preferences and loopholes added to the code since 1986." Based on the best estimates available, we ruled that True, but that’s a much more limited claim than the one Beckel made.
Deductions constitute a broader category of tax provisions, making Beckel’s claim even harder to check. "Some Internal Revenue code sections might have 10 or more deductions" by themselves, said David Kautter, managing director of the Kogod Tax Center at American University.
The Treasury Department has issued estimates of the number of "tax expenditures," but those are only a "subset of tax deductions," said Kautter. "Many deductions are not tax expenditures," such as "wages, office rent, pencils, writing pads, etc."
Since tax experts can’t even really count the number of deductions in the United States, an international comparison is more or less impossible.
In any case, experts told us that the more relevant figure is the size of deductions.
Governments use what’s called a statutory rate -- 39.1 percent in the United States, the highest in the developed world -- which is levied on the businesses’ taxable base. The taxable base starts out as the corporation’s profits, but the tax code allows them to deduct certain expenditures from that base, like wages, health insurance, and investments in infrastructure.
Once you account for deductions, the actual proportion of their profits that businesses fork over to the government is a lot lower. This is called the effective rate. Experts suggested we determine the difference between countries’ effective rates and their statutory rates as a way of measuring the scope of deductions. If the United States were to lead in that measure, then Beckel might have had a point, even if his literal claim didn’t hold water.
Sizing up deductions
Even this is difficult, experts say. William McBride, chief economist at the Tax Foundation, noted that credits and exemptions also help shape the effective rate, so the simple difference between effective and statutory rates can’t be chalked up to tax deductions alone.
Still, since we figured that Beckel cared more about the difference between effective and statutory rates than about distinguishing between deductions and exemptions, we ran the numbers anyway, using the World Bank’s estimates for countries’ 2014 effective rates and the Tax Foundation’s tabulations of their statutory rates.
Those figures showed that the United States has an effective rate of 27.9 percent, meaning the gap was 11.2 points.
That difference ranked 16th out of the 34 advanced, industrialized nations that belong to the Organization for Economic Cooperation and Development. Iceland had the widest ratio between its statutory and effective rates (20 percent versus 3 percent), while Belgium had the largest percentage-point drop (from 34 percent to 6.4 percent). In both difference and ratio, the United States was roughly in the middle of the pack.
Beckel said the United States has "the highest number of deductions available to corporations."
Counting and comparing deductions internationally isn’t practical, and the only plausible alternative -- estimating the gap between the nations’ statutory and effective tax rates -- shows that the gap in the United States is about average among advanced, industrialized countries. We rate Beckel’s claim False.
Bob Beckel on The Five, Sept. 1, 2014
Email interview with William McBride, Chief Economist at the Tax Foundation, Sept. 3, 2014
Email interview with David Kautter, Managing Director at the Kogod Tax Center, Sept. 3, 2014
Email interview with George White, Contributing Editor at Tax Analysts, Sept. 3, 2014
Interview with Alan Viard, resident scholar at the American Enterprise Institute, Sept. 3, 2014
Tax Foundation, "U.S. Corporations Suffer High Effective Tax Rates by International Standards," Sept. 2011
World Bank Group, "Paying Taxes 2014," Nov. 19, 2013
Tax Foundation, "The U.S. Has the Highest Corporate Income Tax Rate in the OECD," Jan. 27, 2014
Tax Foundation, "Corporate Income Tax Rates around the World, 2014," Aug. 20, 2014
PolitiFact Ohio, "Sen. Rob Portman says hundreds of tax preferences and loopholes have been added since 1986," March 11, 2013
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