This morning Andrew Leigh sent out this tweet:
— Andrew Leigh (@ALeighMP) April 2, 2017
Importantly his tweet included this table.
Look at the explanation of the effective tax rate:
The effective corporate tax rate is the percentage of income from a marginal investment—that is, an investment that pays just enough to make the investment worthwhile—that must be paid in corporate income taxes.
The reported figure for Australia is 10.4%.
I immediately thought that is wrong. Until very recently Australia had a flat company tax rate. One of the advantages of a flat tax is that the statutory rate and the marginal rate are equal. The CBO analysis mostly applies to the 2012 calendar year. In that year the “effective corporate tax rate” – as they describe it – would have been 30% in Australia (for Australian taxpayers).
So I was sufficiently interested to have a look at the CBO analysis.
When looking at studies like this it is always important to look at the question being asked. I can think of no reason why the CBO would be generally interested in Australian (or G20) tax rates. The World Bank, or IMF, or OECD, would be interested but the CBO is a branch of the US Congress and would mostly be interested in US affairs.
So what is the CBO doing?
In this report, CBO compares average corporate tax rates for U.S.-owned foreign companies with the rates faced by foreign-owned companies incorporated in the United States.
So the analysis is all about US taxpayers – not Australian taxpayers (or G20 taxpayers for that matter).
What the analysis does show is that Australia is tax advantaged for US taxpayers compared to many other locations for US investment.