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Trump says the US has the highest corporate tax rate in the world. He's wrong

Donald Trump
Jonathan Ernst | Reuters
Donald Trump

President Donald Trump began his sales job for wide-ranging tax cuts Wednesday by arguing that the US needs to shrink its corporate tax rate if it wants to have any hope of competing with its economic rivals.

"When it comes to the business tax we are dead last, can you believe that?" Trump said during his remarks in Springfield, Missouri. "We have totally surrendered our competitive edge to other countries."

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But what he doesn't note is that, while on paper the US business tax rate is exceptionally high, in practice the US taxes its businesses at similar rates to its international peers. And so Trump's dire warnings about the need to lower the business tax code is really part of an effort to push through a gift to American corporations rather than make a serious bid to catch up to the rest of the world.

During his remarks, Trump referred to the U.S.'s 35 percent statutory corporate tax rate. He said that the rate, which is technically one of the highest in the world, suffocates American businesses and compels them to ship jobs overseas.

But that's inaccurate on a number of levels.

"It's a bit misleading because our corporate tax code is riddled with loopholes and what corporations pay is far, far lower — somewhere between 13 and 21 percent," Hunter Blair, a tax and budget analyst at the left-leaning Economic Policy Institute, told me.

"When you get down to specific companies, sometimes they pay 3, 4, 5 percent," he added.

According to a 2017 Congressional Budget Office report, the US's effective corporate tax rate — the rate that factors in these loopholes — clocks in at 18.6 percent. That's lower than in Japan (21.7 percent) and the UK (18.7 percent) and only a few percentage points higher than Germany (15.5 percent).

Steven Rosenthal, a senior fellow at the Urban Brookings Tax Policy Center, told me that the loopholes are so pervasive that the formal rate is "irrelevant."

"When you take into account the loopholes in US tax code, our [business] taxes are pretty much the same as our competitors," Rosenthal said.

Corporations thrive using offshore tax havens

Big multinational corporations commonly make use of the deferral loophole, which allows them to avoid taxes on profits made abroad.

That exception creates incentives for corporations to use accounting gimmicks to shift profits made at home to overseas subsidiaries and to funnel money through foreign tax havens where they owe little to no tax.

According to a 2017 report by the Institute on Taxation and Economic Policy, Fortune 500 companies are dodging up to $767 billion in US federal income taxes by keeping more than $2.6 trillion of their profits offshore.

Trump also charges that the US's stifling corporate tax rate is to blame for jobs being shipped overseas. He said other countries "made their taxes lower — and far lower in many cases than ours — and jobs left our country."

But that's a crude simplification of why corporations move their operations abroad, which happens for plenty of other reasons, like cheaper labor costs.

"Tax rates are only a small piece of the factors that determine where a company locates," Rosenthal said. "[Other factors are] educated work force, infrastructure, rule of law. To highlight taxes in isolation is misleading."

Instead of trying to lower the corporate tax code, Trump should consider closing the loopholes that allow them to sidestep the rate at which they're actually supposed to be taxed. Right now, corporations, which are making record profits, are doing just fine.

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This story originally appeared on Vox