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Half of Large Companies Paid Lower Taxes than the Average American

July 25, 2012
Investing, Investing Data
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The average American pays 11% of his income in federal taxes.  NerdWallet investigated how this compares to the rate paid by American corporations and found that actual taxes paid by 500 of America’s largest corporations to the U.S. government (the S&P500 companies) averaged 13%, just higher than that paid by the average American.  Over half of these companies (52%) paid less than the 11% that the average American paid.  The official tax rate for large corporations with high earnings is 35%, while the official effective tax rate for an average American is approximately half as much.

Actual tax rate paid was calculated by dividing the current portion of federal taxes by pre-tax income.  In other words, NerdWallet looked at what percentage of these American companies’ earnings were actually paid to the U.S. government in the current year.  This number differs from a company’s tax rate provision, which includes all taxes owed to any taxing entity, domestic or foreign, both due in the current year and deferrable to pay in the future.  There are many legitimate reasons why taxes paid by corporations may differ from statutory tax rates, a topic that is currently under review and likely to become a hot presidential election topic.