Tax Policy:

1988 and 1989 Company Effective Tax Rates Higher Than in Prior Years

GGD-92-111: Published: Aug 31, 1992. Publicly Released: Sep 19, 1992.

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Pursuant to a congressional request, GAO reviewed the effects of the Tax Reform Act of 1986 on large company tax rates, focusing on: (1) effective tax rates for 1988 and 1989; and (2) reasons for low or high effective tax rates.

GAO found that: (1) between 1986 and 1989, average U.S. effective tax rates increased by 72.6 percent, from 18.6 percent in 1986 to 32.9 percent in 1989; (2) by 1989, the average worldwide large company and industry tax rate increased to 37.1 percent; (3) the difference between the average U.S. effective tax rate and the statutory rate declined; (4) by 1989, the dispersion of company and industry U.S. effective tax rates narrowed; (5) the number of companies with U.S. effective tax rates below 10 percent decreased, while companies above the statutory rate increased significantly; (6) the act was expected to increase corporate taxable income relative to pretax accounting income, but data limitations prevent a direct link between the act and higher U.S. effective tax rates; (7) the 14.3-percent increase in the average U.S. effective tax rate may be temporary, due to the balancing and reversal of previous deferred taxes; and (8) the high rates partially result from previously deferred taxes attributable to installment sales, long-term contracts, and investment tax credits.

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