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Low corporate tax rates don't guarantee more jobs

Tax reform isn't happening any time soon. One group of researchers says that's not so bad.

In fact, their study found that a key component of tax reform -- a lower corporate tax rate -- wouldn't deliver promised rewards to the rest of the country.

It's been almost an article of faith for some time now that the United States needs a lower corporate tax rate for businesses to be more globally competitive. That, in turn, will help rev up a sluggish economy and produce much needed jobs for American workers.

Supporters of cutting business taxes point to data showing America's corporate tax rate of 39.1 percent (including state and local taxes) as the highest among members of the Organization for Economic Cooperation and Development (OECD).

OECD corporate tax rates 2013

Others, however, says that U.S. companies don't have it so bad tax wise. They note that there are many loopholes and tax breaks in the Internal Revenue Code that allow companies to pay much lower or, in some cases, no taxes.

In fact, a recent study by the U.S. Government Accountability Office found that on average corporations pay just 12.6 percent of their profits in federal income taxes.

No correlation between low rates, more jobs: And now another study says that one of the prime arguments for a lower tax corporate tax rate, that it would create more jobs, is not necessarily true.

There is no evidence that lowering taxes on corporate profits will lead to the creation of more U.S. jobs, according to the Center for Effective Government (CEG).

"The notion that reducing the taxes corporations pay on their profits will create new jobs in the U.S. is just not borne out by the evidence we examined," said Katherine McFate, CEG president and CEO and one of the co-authors of The Corporate Tax Rate Debate: Lower Taxes on Corporate Profits Not Linked to Job Creation.

CEG analysts examined the job creation track record of 60 large, profitable U.S. corporations (from a list of 280 Fortune 500 companies) with the highest and lowest effective tax rates between 2008 and 2010 and found:

  • Twenty-two of the 30 corporations that paid the highest tax rates (30 percent or more) on their reported profits created almost 200,000 jobs between 2008 and 2012.
  • Only eight of the 30 firms paying high tax rates reported reducing the number of employees between 2008 and 2012.
  • The 30 profitable corporations that paid little or no taxes over three years collectively shed 51,289 jobs.
  • Half of these low-tax firms created some jobs and half shed jobs between 2008 and 2012.

Company gains, employee losses: Specific company tax rates and hiring/firing trends also were highlighted by the report.

Lowe's, the second-largest home improvement store chain in the United States, paid taxes of more than 36 percent on reported profits of $9 billion between 2008 and 2010. Between 2008 and 2012, notes the report, Lowe's hired an additional 28,820 employees.

Verizon, the nation's largest wireless provider, reported $32 billion in U.S. profits between 2008 and 2010, yet received tax refunds totaling $951 million. Between 2008 and 2013, according to CEG, Verizon reduced the number of employees by almost 56,000.

"The comparatively high tax rates paid by responsible companies like Smuckers, Nordstrom, Hershey and Automatic Data Processing doesn't stop them from investing in their businesses and generating new jobs for U.S. workers," said Scott Klinger, CEG director of Revenue and Spending Policies and co-author of the report.

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