FairTax Overview
In the U.S., corporations that earn profits of more than $18.3 million are taxed at an outstanding top
statutory marginal rate of 35 percent.4 The statutory combined rate adds to this state and local tax rates
(on average 4.2 percent), yielding a 39.2 percent statutory combined rate. Owners of S corporations,
partnerships and sole-proprietorships based on the current budget proposal pay a national statutory rate
of 39.6 percent (not including payroll taxes) on income over $383,350. But that same taxpayer pays 10
percent on income up to $8,600, and 15 percent on income up to $34,900, etc. Depending on deductions,
a taxpayer might pay a relatively modest average tax on total earnings, yet nonetheless face a 39.6
percent marginal tax on any activities that could push income higher—such as extra effort, education,
entrepreneurship, or investment. The chart below shows where the U.S. ranks among developed
countries when considering corporate rates.
2010 Corporate Tax Rates, U.S. vs. OECD Countries
National Statutory Rate
Statutory Combined Rate
Effective Rate
U.S.
35.0%
39.2%
29.0%
OECD Average
23.4%
25.1%
20.5%
U.S. Rank
34th out of 34
33rd out of 34
33rd out of 34
In short, the U.S. has the dubious distinction of sporting a national statutory rate of 35 percent and a
statutory combined rate of 39.2 percent, compared with average OECD rates of 23.4 percent and 25.1
percent, respectively. For tax policy considerations, marginal decisions (such as extra effort or
investment) depend mainly on marginal incentives (extra income, after taxes). For this reason, it is the
marginal rate that has the greatest negative effect on the economy.
Mercatus Center Senior Research Fellow Veronique de Rugy has done excellent work in charting
corporate income tax rates. According to her findings, the U.S. has the highest national
statutory corporate tax rate in the OECD. In 2011, national statutory corporate tax rates among
the thirty-four members of the OECD will range from 8.5 percent in Switzerland to 35 percent in the
U.S. When sub-national taxes are added, the U.S. has the second-highest statutory combined corporate
tax rate – 39.2 percent – after Japan’s rate of 39.5 percent. Marginal tax rates became the central theme
of a revolution in economic policy that swept the globe during the last two decades of the twentieth
century, with more than fifty nations significantly reducing their highest marginal tax rates.
4
According to the 2008 SOI, there were 1.8 million C Corporations for that year, 4.05M S Corporations, 3.14M Partnerships
(LLCs, LLPs, LP’s, et. cet.) and 22M sole-proprietorships.
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