Veteran Advisor
Posts: 939
Registered: ‎10-18-2016

US And German Taxes Compared

The Chicago Federal Reserve Bank produced a discussion comparing US and German taxes.


Multinational corporations have many ways to legally shift income so as to be taxed in the lowest rate environment.  Nations don't want corporations to shift income to minimize taxes.  Laws won't do it all, especially for the larger and more sophisticated companies..  One way is to have a tax rate that doesn't incentivize income transfer.  In other words, a tax rate that compares favorably with other countries.  




Globalization brings both costs and benefits. One of the costs is that it reduces the ability of a country to tax income earned by multinational corporations that can shift production between countries in order to lower their tax bills. As a consequence, governments around the world have been examining ways to deter such profit-shifting.

One way to deter profit-shifting is to reduce international differences in corporate tax rates. This is a large part of the rationale for the corporate tax reduction embodied in the House GOP and administration tax reform plans. The House GOP plan for border adjustments goes further and would systematically eliminate most forms of corporate tax evasion (especially corporate inversions). If passed, corporate tax reform would likely benefit the U.S. as it would stabilize the tax base; and it may also encourage other countries to introduce similar measures in their own tax codes.

Nonetheless, it is true that the U.S. is a relatively low-tax nation. Notwithstanding the high tax burden on corporate income, the overall tax rate on capital income is low. And we find that the House GOP plan would reduce the overall tax burden on capital income further below that of Germany. If the U.S. Congress does not pass corporate tax reform, other alternatives for deterring profit-shifting will need to be explored. These might include the possibility of ending the corporate tax deductibility of interest and license fee payments (both are major tax evasion vehicles), which has been discussed in both the U.S. and Germany in the past."


I encourage you to read the entire tax discussion.  You'll note that the German consumption tax (value added and sales tax) is much higher than the US.  


The US tax rate is less than 30% of GDP, Germany is under 40%.  Quite a difference.


For 2015, the US Income Tax is about 63% of tax revenues, Germany is about 51%.  US consumption tax is about  22% vs Germany 45% and property tax is US 13% of total tax revenues and Germany 4%.


German corporate tax is about 3% of total tax revenue, US is 9%.  Is there any wonder a company would rather be taxed in Germany than the US?


"Although the tax burden on total capital income is lower in the U.S. than in Germany, we are especially interested in taxes on corporate income as this form of capital income is easier to shift between tax jurisdictions. We plot corporate tax revenue as a fraction of corporate income for both countries in figure 6. We see that the overall tax burden on U.S. corporations was just under 20% in 2015, compared with less than 15% in Germany, even after including municipal trade taxes on corporations; that is, the tax burden on corporations in the U.S. is one-third higher than in Germany. "


There is more to the story and you should read it all.  




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