The CBO on tax rates

This morning Andrew Leigh sent out this tweet:

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.

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12 Responses to The CBO on tax rates

  1. Infidel Tiger

    You should offer to tutor him Sinc. He is really struggling and there a good chance he will be Finance Minister soon.

  2. ar

    Nice follow up to his share nominee article.

  3. Judith Sloan

    My guess is the result of tax agreement between two countries. Quite common.

  4. OneWorldGovernment

    Why is there any TAX on a company.

    Surely the income derives to the owners.

    Even if ‘the company’ does not distribute profits by way of dividend or whatever.

  5. v_maet

    While Australia is favourably taxed for US based companies, the wages and the transport costs make it not worthwhile to locate here.

  6. stackja

    ALP Finances ‘reputation’ intact.

  7. Rabz

    So, Andrew Leigh is wrong (again).

    Sinc, regrettably, this says a lot more about you than it does about him.

    He’s a labor politician – it’s a given that he’s one of the lowest forms of life to have ever existed in the history of human consciousness.

    I expect better from you.

  8. Rabz

    Mind you, having said that, at least you’ve exposed his inexcusable ignorance (again).

  9. H B Bear

    He’s not very good at this stuff is he? Maybe he is outsourcing this stuff to ALP elder statesman Wayne Goosesteen who still hasn’t managed to line up an Adjunct Professor position at the Nambour TAFE.

  10. Empire

    Two clangers in a month is no coincidence. Is his form disingenuous or incompetent?

    We who pay his way deserve to know.

  11. Procrustes


    Let me correct your question

    “Is his form disingenuous AND incompetent?”

    Answer: Yes

  12. Hydra

    Look at all those countries with high taxes that are beacons of prosperity.

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