Does the U.S. have the highest corporate tax rate in the free world?

Pundits don’t just disagree about what tax rates should be; they also disagree about how high they actually are.

On Fox News’s The Five, hosts Bob Beckel and Eric Bolling came down on either side while discussing how the economy has fared under President Barack Obama.

America has "the most number of deductions available to corporations," Beckel said. "They pay lower taxes than a lot of European countries do, and under Obama, I have not seen corporate taxes go up all that much."

"Just to fact-check you a little bit," responded Bolling, "we have the highest corporate tax rate in the free world."

Beckel repeated his point, then Bolling pointed towards Pfizer and Burger King going overseas for what he called "tax inversion."

"They’re going there specifically to capture a lower corporate income tax," said Bolling.

We separately checked Beckel’s claim about deductions, but in this check, we’ll see whether Bolling is correct that the United States’ corporate tax rate ranks as the highest in "the free world."

The rate in theory

We decided to focus on the countries that belong to the Organization for Economic Co-operation and Development, a group that includes most advanced, industrialized nations. That fits our bill for a proxy for "the free world."

Out of the 34 countries in the OECD, America ranks first with a 39.1 percent corporate tax rate, compared to an OECD average of 24.1 percent. The OECD figure is what’s called the statutory rate, meaning the base rate applied to corporate profits.

According to the Tax Foundation, two non-OECD countries -- the United Arab Emirates (55 percent) and Chad (40 percent) -- have a greater statutory rate than the United States. But the UAE is governed by a monarchy and Chad is a developing country, so we don’t think they would fit into the "free world" category Bolling used.

The rate in practice

PolitiFact, our sister site, has looked at several variations on Bolling’s claim and ruled them Mostly True almost every time. The reason for the "mostly" qualifier is that companies aren’t actually taxed at the statutory rate.

Tax deductions -- on health insurance, pensions, and investment returns, for example -- allow corporations to reduce the pool of taxable profits. So economists often look at what they call the effective tax rate, which experts have told us is just as valid a measurement of corporate tax rates as the statutory rate.

But whereas the statutory rate is relatively straightforward and uncontroversial, different, reputable organizations have published very different estimates of the effective tax rate that corporations pay.

The most recent estimate comes from the World Bank and International Finance Commission, which put the United States’ effective rate for 2014 at 27.9 percent. That’s second-highest behind New Zealand among OECD countries and 15th-highest among the 189 countries measured.

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Donald Trump

stated on October 15, 2024 in a rally in Atlanta

Vice President Kamala Harris' plan “will raise taxes for the typical American family by an estimated $3,000."

In 2011, the Tax Foundation published a survey of 13 prior estimates of the United States’ effective tax rate from 2005 to 2011. All 13 studies pegged the U.S.’s rate as above average, but none had the U.S. rate first overall.

Another 2011 study by the Congressional Research Service put the U.S. effective rate at 27.1 percent, slightly lower than the OECD average of 27.7 percent.

Taxes are convoluted

Different studies disagree on effective corporate tax rates because corporate tax rates tend to vary widely depending on the industry, said Alan Viola, resident scholar at the American Enterprise Institute.

"The biggest deduction that varies across countries is how generous the depreciation schedule is," said Alan Viard, resident scholar at the American Enterprise Institute. "When a business does an investment, equipment, a building, they don’t normally get to deduct the whole cost that year. They have to do it over time."

Faster is better, said Viard, but depreciation rates vary depending on what types of equipment a company is buying.

Many studies also don’t account for what the United States classifies as S-corporations, meaning businesses that pay tax through the individual income-tax system rather than the corporate income-tax system, Viard said. This represents about 30 percent of American companies, he said.

So while effective tax rates are a good estimate of the corporate tax burden in the United States, particular businesses’ burden may vary.

Our ruling

Bolling said the United States has "the highest corporate tax rate in the free world." He was referring to the statutory rate, meaning the rate before deductions. On that score, he’s right: The United States does have the highest statutory rate among developed countries. However, the United States’ corporate tax rate doesn’t appear to be the highest once deductions and other exclusions are taken into account. So Bolling is correct by one valid definition. Because his statement is accurate but needs clarification or additional information, we rate his claim Mostly True.