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Republicans are right about the corporate tax system being broken, but wrong about why it’s failing and how to fix it.

The basic proposition put forth by President Trump and congressional leaders is that the present tax rate, 35 percent, makes it hard for American corporations to compete with foreign companies and ends up driving American businesses overseas. They would address this by slashing the rate to 20 percent, claiming that this would not only help companies but would also raise household income by $3,000 to $7,000, mainly in the form of higher wages.

Much of this is absurd.

Start with the tax rate itself. American businesses theoretically pay 39 percent of their profits in taxes to the federal and state governments. That might seem shocking; it’s more than double the 19 percent Britain charges its businesses. But because of copious loopholes — not least the ability of large multinationals to shift profits to low-tax countries — few businesses pay the sticker price; in fact, American companies pay an average effective federal-state rate of 18.1 percent, according to a 2016 report by the Obama White House and Treasury Department, just shy of the 19.4 percent average effective rate for Britain, Canada, France, Germany, Italy and Japan — the other members of the Group of 7 nations. Far from being the highest taxed in the world, as Mr. Trump claims, United States corporations are taxed at roughly the same rates as those in other advanced nations.

Opinion | The Right Way to Cut Corporate Taxes

Here’s why the Republican tax plans are such a boondoggle.


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