64 Pages Posted: 3 May 2003 Last revised: 27 Jun 2014
Date Written: December 1, 2003
Three recent phenomena - the corporate governance scandals, continuing concern about corporate tax shelters, and the Bush Administration's proposal to exempt dividends from income - have generated renewed interest in the amount of taxes paid by public corporations on the profits they report to their investors. This paper estimates the effective tax rates (ETRs) from 1995 to 2000 of the corporations included in the S&P 500 based on a comparison of their worldwide current income tax expense to their worldwide pre-tax book income. It finds that after controlling for the disparate tax and accounting treatment of stock options, the ETR of the sampled corporations declined slightly, from 30.11% in 1995 to 27.98% in 2000. Potentially more revealing is the fact that there is an important reduction in the 1999 ETR relative to the 1995-98 period (during which the ETR was virtually unchanged), and the 2000 ETR remains below the 1995-98 average. The paper is unable to relate these remaining changes in ETR to trends in foreign investment of the companies involved.
The paper also estimates that the six-year ETRs (after stock option conformity) of ten industry groups varied from a low for the energy sector (25.72%) and industrials (25.84%) to a high for the information technology sector (32.48%) and utilities (32.43%). Both the level of taxation (compared to the statutory tax rate of 35 percent) and relative uniformity of tax treatment of the industries is to be contrasted with the much greater variations experienced by industries during the early 1980's.
Keywords: effective tax rate, S&P 500, stock options, foreign investment, book income, multinationals
JEL Classification: H20, H25, H26, K34, M41
Suggested Citation: Suggested Citation
Yin, George K., How Much Tax Do Large Public Corporations Pay? Estimating the Effective Tax Rates of the S&P 500 (December 1, 2003). 89 Va. L. Rev. 1793 (2003); Virginia Law and Economics Research Paper No. 03-5; Virginia Public Law and Legal Theory Research Paper No. 03-5. Available at SSRN: https://ssrn.com/abstract=390260 or http://dx.doi.org/10.2139/ssrn.390260