Effective 

Income Tax Rates 

Paid by United States 

Corporations in 1972 

Department of the Treasury 

May 1978 
Effective 

Income Tax Rates 

Paid by United States 

Comorations in 1972 

Office of Tax Analysis 

Department of the Treasury 

May 1978 

For saJo by tb.e Superintendent of Documents, U.S. Government Printing Omce 

WashingtOn, D.C. 2<»02 
Preface 

This publication of estimated effective income tax rates 

paid by U.S. corppor a tions in 1972 is an outgrowth of work 

initiated in December, 1975 a t th e joint request of the 

Ch a irmen of the Joint Economic Committee and the Senate 

Select Committee on Small Business. Pursuant to that 

request, and following a meeting among interested parties, a 

Steering Committee comprised of representatives of the 

aforementioned Committees, along with others from the Joint 

Committee on Internal Revenue Taxation and the Federal Trade 

Commission, was established to help guide the Treasury in its 

assembly of information, the decision having been reached 

that tax return data afforded the best source of income and 

tax measures. 

Through the course of this e ndeavor, the Treasury staff 

have benefitted from the exchange of views and technical 

assistance made possible by this arrangement. Needless to 

say, the Treasury is wholly responsible for the content of 

this report. The release of this report to the Congress and 

the public is made in the interest of furthering 

understanding of the difficulties and ultimate ambiguities in 

the construction and interpretation of effective tax rates. 

i 
TABLE OF CONTENTS 

Page 

Preface • • • . • • . . . . . . . . . . i 

I. 

II. 

Introduction. 

Effective Tax Rates, 1972; Nonfinancial 

Corporations ••••.•••...•• 

A. Misrepresentation of effective tax rates due 

1 

2 

to improper aggr egation of corporations • • 4 

B. Improving the content and better matching 

of numerator and denominator . . • . • • • 8 

(1) Adjustments to income (denominators) • 8 

(2) Adjustments to taxes (numerators). • • 11 

(3) Effective tax rates after adjustment • 13 

III. Effective Ta x Ra tes, by Industry 17 

IV. Concluding and Precautionary Comments . 23 

A. Comparisions with e ffective tax rates based 

B. 

on published financial statements . • • 23 

(1) 

(2) 

Consolidation rules •••• 

Income measur ement rules . 

(3) Accounting for taxes 

(a) "Defe rred taxes." 

(b) Other years' transactions i n the 

24 

25 

26 

current year tax account. 32 

Interpretative precautions 35 

(1) Implications of below statutory 

corporate effective tax rates. • . • . 36 

(2) Effects on fairness of the tax 

system . . . . . . . 38 

ii 
Tables: Page 

1. Income Measures, United States and Foreign 

Tax Liabilities; For Nonfinancial 

Corporations Filing Income Tax returns, 

By Size of Adjusted Assets; 1972. . • • . • 43 

2. Effective Tax Rates on worldwide Income, 

All Corporations With Income, and 

Corporations With Under $1,000,000 of 

Assets, by Industry; 1972 . • . • . • • • 45 

2a. Effective Tax Rates on Worldwide Income, 

All Corporations With Income, By Industry 

and Size of Assets; 1972 • • • • • • • • • 46 

3. Effective Tax Rates on U.S. Source Income 

All Corporations With Income and Corporations 

With Under $1,000,000 of Assets, by Industry, 

1972. . . . . . . . . . . . . . . . . . 49 

3a. Effective Tax Rates on U.S. Source Income, 

All Corporations with Income, by Industry 

and Size of Assets; 1972. • . • • • • • • • 50 

~ppendix: Industry Descriptions . 54 

Definitions of terms •• 56 

iii 
1 

I. Introduction. 

There is a persistent popular interest in "effective tax 

rates" paid by two classes of income taxpayers, persons and 

corporations. There is also widespread misunderstanding 

about the ambiguities of effective tax rate computation. 

This report is concerned only with corporation income taxes 

and is intended to shed light on the taxability of income, by 

size of corporation and by industrial class, and to set out 

logical rules for the construction of effective tax rates. 

The data relied upon here for measures of income and of 

its taxability have been derived from individual corporation 

income tax returns selected by the Internal Revenue Service 

for statistical processing and for reporting in its annual 

publication, Statistics of Income: Corporation Income Tax 

Returns, 1972. For this report, foreign income and tax items 

from Form 1118 not included in the IRS publication have been 

extracted and collated with the pr eviously published tax 

return information. The asset size classification employed 

in this report also differs from that in Statistics of 

Income. Here the total assets of a corporation as reported 
2 

in its tax return, and which a re the basis for size 

classifications in Statistics of Income, have been adjusted 

by netting-out trade credit to better represent assets 

actually employed in its business by the corporation.!/ 

II. Effective Tax Rate s, 1972~ Nonfinancial Corporations. 

~h "effective tax rate" is simply the ratio of some 

measure of "taxes paid" to some measure of before-tax 

"income." Much mischi e f may be done in such a computation by 

mismatching of the numerator and denominator. The 

denominator, being an income measure, is generally computed 

on the basis of accrual rules: the "income" of a year is 

determined by elaborate accounting procedures which attempt 

to match the costs of earning the sal e s receipts during a 

1/ If accounts and notes receivable exceed accounts and 

notes payable, the latter is subtracted from both sides of 

the balance sheet. In this case, the net trade credit 

extended is capital employed which must be fina nced by 

long-term debt and equity. If accounts and notes payable 

exceed receivables, the receivables are subtracted from both 

sides of the balance sheet. The excess of payables is then a 

source of finance for the remaining assets employed in the 

business. 
3 

year, regardless of the timing of actunl revenues or 

expenditures. On the other hand, "taxes due" is basically a 

"cash accounting" concept under which only the net liability 

for tax due to the u.s. Treasury during a year is customarily 

accounted for. If the use of the tax account to clear other 

years' transactions, such as refunds, is neglected, "taxe s 

due" becomes inappropriate as a measure of tax liability 

generated by the "income" shown in the denominator.~/ 

Moreover, "income" reported and used as the denominator of an 

effective tax rate calculation for U.S. taxpayers is 

invariably worldwide income, for the Internal Revenue Code 

subjects to tax income from all sources, both foreign and 

domestic. Obviously, if only the net tax due the U.S. 

Treasury is shown in the numerator while worldwide income 

taxes is shown in the denominator, there is an overt 

understatement of the taxability of any taxpayer with 

worldwide income. 

~/ To illustrate the pitfalls of dealing with cash payments 

of tax relative to incomes that have generated tax 

liability, consider that many taxpayers finish paying 

their tax liability for a given year sometime during the 

first third of the succeeding year; other taxpayers 

overpay their tax liability during a given year and 

receive a refund the following year. In either case, 

the taxpayer's "effective" tax rate for the given year 

is the tax liability generated by his income for that 

year, divided by the year's income not the taxes 

actually remitted. 

264- 118 0 - ?8 - 2 
Indeed, failure to consistently match numerator and 

denominator is entirely responsible for the common 

misconception that "small businesses" pay higher tax rates 

than "big business." The following sequential presentation 

of various ways of computing "effective tax rates" is 

intended to put to rest this misrepresentation of fact. 

A. Misrepresentation of effective tax rates due 

to improper aggregation of corporations. 

4 

In 1972 more than 1.6 million nonfinancial corporations 

filed income tax returns (see Row I{a) of Table l).l/ 

Altogether, these nonfinancial corporations reported $75.15 

billion of taxable income, as measured by the rules of the 

Internal Revenue Code and from all sources, domestic and 

foreign. In the tables, this measure of income is referred 

to as "basic worldwide taxable income" {BWTI). On the basis 

of BWTI of $75.15 billion, nonfinancial corporations owed 

ll Financial corporations, banks, insurance companies, 

investment companies, etc., are not reported as a group 

because size classifications among these heterogeneous 

enterprises have little meaning. In the case of 

insurance companies, the measure of taxable income 

provided in the Internal Revenue Code is so highly 

specialized it cannot be adjusted to reflect normal 

concepts of enterprise income: and in the case of 

investment companies, if they elect to operate as 

regulated holding companies and distribute currently at 

least 90 percent of their before tax income, they are 

not subject to coporation income tax. Banks {commercial 

and savings), on the other hand, do report income and 

other data which permit a sensible approximation of 

before tax income and corresponding tax liability. 

Thus, while banks are excluded from the figures reported 

in this section, they will be reported as an industry 

category in the next. 
5 

net income tax to the Treasury, after all credits, of $29.13 

billion. These figures yield an apparent effective tax rate 

of 38.8 percent overall, the rates ranging from infinity for 

the smallest size class, which reported a net loss of $253 

million while owing $211 million in tax, to 29 percent for 

the very largest. The occurrence of "effective tax rates" 

computed from BWTI in excess of 48 percent, the maximum 

statutory rate on taxable corporate income in 1972, is a 

clear indication that something is amiss in this calculation. 

The reasons for these incongruous results are that 

corporations ~ave been aggregated which do not permit 

comparisons of income and tax liability for the same year. 

Corporations reporting losses. Large numbers of 

corporations, particularly those at the small end of the size 

spectrum, will frequently report negative taxable income 

(losses) in a given year. Algebraically adding negative and 

positive incomes produces a smaller total income in the 

denominator of effective tax rate calculations; indeed, as we 

have seen, the smallest corporations in the aggregate report 

more losses than gains. But, since the tax returns of loss 

corporations do not show the refund, or "negative tax" for 

the year due to the net operating loss carryback or 

carryover, the aggregate "tax due" in the numerator of the 

effective tax rate calculation is undiminished. The net 
6 

result is that we have incomparable numbers in the numerator 

and denominator of the effective tD rate calculation that 

produce overstatements of apparent effective tax rates. 

Corporations .not subject to tax. Certain corporations 

may elect to be taxed essentially as partnerships under 

provisions of Subchapter S of the Internal Revenue Code. 

Some of these corporations report losses, others positive 

taxable incomes: but although their BWTis are (algebraically) 

included in the denominator of the effective tax rates we 

have just reviewed, their tax liabilities are never in the 

numerator.!/ Their inclusion in the calculation necessarily 

confuses the meaning of corporation effective tax rates. 

Similarly domestic international sales corporations (DISCs) 

file income tax returns but are not, directly, subject to 

income tax. Instead, half their income is taxable to parent 

corporations. Obviously DISCs should not be included as 

separate corporations; rather they should be consolidated 

with their parents. 

!/ Subchapter S corporations may generate corporate tax 

liability in connection with certain capital gain 

transactions, but this is invariably a trivial amount of tax. 
7 

Result of reclassification. The dramatic effect of 

careful aggregation may be observed by comparing Sections I 

and II of Table 1. In Section II, corporations without BWTI, 

those electing to be taxed under Subchapter S, and DISCs have 

been eliminated.~/ For nonfinancial corporations, this has 

involved dropping nearly 900,000 corporate entities, but 

increasing BWTI by more than $9 billion. ~s a consequence, 

the overall effective tax rate is reduced to 34.5 percent, 

and the range of "effective tax rates" now begins to 

approximate the statutory rates prevailing in 1972, 22 

percent on taxable income up to $25,000, 48 percent on the 

excess. ~/ 

~I 

~I 

Although DISCs were excluded, they were "statistically" 

consolidated with their parent corporations by doubling 

DISC dividends reported by parent corporations. Because 

DISC dividends reported by parent corporations may refer 

to prior years, this procedure tends to understate DISC 

income of the parents, taxation of which is deferred, 

particularly in 1972 when DISC formation was rapid due 

to novelty of the program. 

Exclusion from the tabulation of corporations without 

taxable income for 1972 in order to maintain 

comparability of numerators and denominators in 

effective tax rate calculations has no effect on results 

if, and only if, tax losses are ultimately refunded. If 

some losses in 1972 are never requited by carry-back or 

-forward to other years, then these losses should be 

retained in 1972 denominators. And if these losses were 

retained, the 1972 effective tax rates would be slightly 

elevated. Unfortunately, there is presently 

insufficient empirical evidence on which to base an 

estimate of the amounts of any year's reported losses 

which will not generate a refund. 
B. Improving the content and bette r matching of 

numerator and denomina tor. 

8 

To this point, we have continued to use U.S. tax due, 

after credits, in the numerator of the effective t ax rate 

calculation and BWTI in the denominator . This is clearly 

unsatisfactory. So long as any measure of worldwide income 

is used in the denominator, worldwide taxe s should be 

included in the numerator. More importantly, the denominator 

in the calculation is taxable income and we are all aware 

that this magnitude is overtly understated for tax purposes 

as a device to subsidize particular economic activities 

engaged in by corporations--and unincorporated enterprises as 

well. Moreover, the tax a ccounts are used to clear refunds 

pertaining to other years' transactions, a source of 

distortion which must be removed. 

(l) Adjustments to income (demominators): 

Restoration of preferential deductions. Subsidies are 

provided certain specific economic activities in the form of 

special deductions from gross income in arriving at taxable 
9 

income. Among those available in 1972 we might list:I/ 

(a) Special 5-year amortization privileges, in lieu of 

normal tax depreciation deductions, for childcare facilities, 

railroad rolling stock, rehabilitation of low- and 

moderate-income housing, coal mining safety equipment, and 

pollution control investment; 

(b) Percentage depletion allowances for production of 

minerals, including oil and gas; 

(c) A special deduction for U.S. corporations at least 

90% of whose gross income originated in trade outside the 

United States, but within the western hemisphere. 

Clearly, the excess of these deductions over those which 

would be regularly allowed in the measurement of pre-tax 

11 In addition to the preferential deductions listed which 

apply generally to financial and nonfinancial businesses, are 

those extra "bad debt" deductions allowed commercial banks 

and thrift institutions. The effect of bad debt deductions 

is dealt with in the following section presenting effective 

tax rates for banking. 
10 

income is merely an intentional understatement of taxable 

income. The excess of these deductions should be restored if 

the denominator in an effective rate caluclation is to 

substantially represent a corporation's (or any taxpayer's) 

before-tax income for the year.~/ 

8/ Due to the existence of the m1n1mum tax on preferences, 

Tt was possible to identify the magnitudes of these excesses 

af preferential deductions which might be restored to income 

for 1972. The minimum t ax generated by these preferences, if 

any, is already included in the u.s. tax element of the 

numerator. Another significant preference for which no 

adjustment to the income denominator could be made is the 

expensing of intangible drilling costs and related 

preferential treatment of exploration costs for other 

minerals activities. For these preferences the necessary 

data, taxpayer by taxpayer, are totally lacking in tax return 

records. 

A case could be made that at least part of the ordinary 

allowances claimed for depreciation are preferential in that 

they are in excess of the amounts that would be required to 

measure income appropriately. This has been particularly 

documented in the case of tax depreciation allowances for 

real property. However, this study has generally not 

attempted to adjust reported deductions for tax depreciation 

due to the unavailability of sufficiently detailed 

information on the tax return. Nevertheless, preferences for 

"accelerated depreciation" deductions taken with respect to 

certain properties subject to a net lease and which are also 

part of the minimum tax base have been added back to taxable 

income. 
11 

Restoration of excluded income. Many corporations hold 

bonds issued by state and local governments the interest on 

which is exempt from tax. By law, this interest income is 

excluded from the holders' taxable incomes. Restoration of 

this exclusion to income yields a better measure of before 

tax income for the year.~/ 

(2) Adjustments to taxes (numerators): 

Foreign taxes. Under longstanding international 

conventions observed by the United States, foreign 

governments are accorded the "first chance" to tax income of 

u.s. corporations earned within their political 

jurisdictions. Mechanically, this is accomplished by 

requiring U.S. corporations to report as taxable income in 

their u.s. tax returns the income they earn abroad (but in 

the case of foreign subsidiaries, only when dividends are 

remitted to the parent), to compute U.S. tax which would be 

due on that income, and then take as a credit against this 

tax otherwise due the amount of tax pa id to foreign 

governments. 

~I It should be noted that this mode of correction for the 

exclusion of tax-exempt interest exaggerates the effect 

of this subsidy to state and local government debt 

financing in reducing "e ffective tax rates" of holders 

of these securities. See discussion of t his point in 

Section IV, 

28 4- 2?8 0 - 78 - ' 
• 

12 

If foreign taxes paid are less than the amount computed under 

U.S. tax laws, the difference must be paid to the Treasury . 

If foreign taxes paid exceed U.S. tax liability, the excess 

may be carried back or forward to other years to be credited 

against u.s. tax liability, but only against the U.s. tax 

attributable to foreign source income. Clearly, if worldwide 

income appears in the denominator, worldwide taxes generated 

by that income, both those paid abroad and to the Treasury, 

should appear in the numerator.!Q/ 

Effect of loss carryforward. In any year many corporations 

that had suffered a loss in prior years but were unable to 

secure a refund because they had insufficient taxable income 

in the 3 carryback years will obtain their refund by simply 

deducting a carryforward of unrequited losses against the 

10/ Foreign income taxes restored to the numerator are those 

reported in Form 1118 as taxes paid and accrued and deemed 

paid. 
13 

otherwise taxable income of the current year. This is an 

eminently sensible and efficient way to accomplish the 

refund: it avoids the payment of all its current year's tax 

by such a corporation to be followed by application for a 

refund. Clearly, then, the deduction from this year's 

taxable income of a loss carryforward leads to an 

understatement of this year's pre-tax income and should be 

restored. Similarly, exclusion from tax due of the amount 

refunded with respect to the loss carryforward is an 

understatement of tax generated by this year's income; this, 

too, should be restored. This adjustment parallels the 

adjustments for current year's losses described above. 

(3) &ffective tax rates after adjustments. 

Section III in Table 1 shows the outcome of making 

these necessary adjustments to the numerator and denominator 

of the effective tax rate calculation. On the one hand, 

expanding BWTI to include overt understatments and exclusions 

has added nearly 120,000 nonfinancial corporations to the 

tabulation and has increased the denominator (income) by over 

$9 billion. On the other hand, restoration of refunds due to 

prior year losses and inclusion of foreign income taxes paid 

and deemed paid has added $9 billion to the nonfinancial 

corporations' numerator (taxes). As a consequence, the 1972 
14 

effective tax rate for all nonfinancial corporations becomes 

40.9 percent, 6.4 percentage points higher than before. 

There is also apparent now a clear upward progression of 

effective tax rates by size of corporation.ll/ 

It is noteworthy that the adjustments to tax and income 

involved in going from Section II to III have little impact 

on computed effective tax rates of corporations a t the low 

end of the spectrum but a large impact on those at the high 

end. This is not unexpected: smaller corporations rarely 

have foreign income and tax and they less frequently engage 

in the kinds of economic activities favored by preferential 

deauctions or exclusions from taxable income. Their major 

preference (in 1972) is the $25,000 exemption from surtax 

which holds their effective tax rates near the 22 percent 

normal tax level. 

11/ The high effective tax rate in the over $1 billion asset 

class is due to the peculiar problems associated with foreign 

taxes reported by oil companies. See the discussion of that 

industry's effective tax rate in the section following. 
15 

The Section III figures are recommended as the best 

single indicator of effective tax rate be cause the numerators 

(worldwide taxes) and denominators (worldwide income) are 

most closely matched. However, Sections IV and V of Table 1 

present separate computations of domestic and foreign 

effective tax rates. The domestic income effective tax rates 

in Section IV were derived by subtracting taxes paid foreign 

governments from worldwide taxes to obtain the numerator of 

the ratio and by subtracting foreign source income from 

worldwide income to obtain the denominator. This leaves in 

the numerator some tax attributable to foreign source income 

and causes the effective tax rates on U.S. income to be 

slightly overstated. Similarly, the foreign source income 

effective tax rates in Section v involve some mismatching of 

numerators and denominators, since the former does not 

include some taxes paid the u.s. Treasury with respect to 

some of the before-tax income included in the denominator. 

This causes a slight understatement of these effective tax 

rates. Nevertheless, the following observations are 

warranted: 
16 

Whether with respect to domestic or foreign source 

pre-tax income, effective tax rates rise with income. 

In the case of domestic income, the drop-off of the 

U.S. effective tax rate in the ~1 billion and over 

asset class, from 40.7 in the preceeding class to 

37.7, is accounted for entirely by the dominance of 

utilities and companies with mineral income in that 

largest size ciass, as will be evident in the 

industry breakdowns to be reviewed below. 

Although the taxability of foreign source corporate 

income appears to be substantially above domestic 

rates, 56.1 as compared with 37.8, this appearance is 

due almost entirely to the confounding of oil taxes 

and other payments to host countries. When the oil 

company foreign income and tax items are eliminated, 

the effective foreign rate is 40.0 percent, only 

slightly above the u.s. effective rate on domestic 

income. 
17 

III. Effective Tax Rates, by Industry. 

Reference has already been made to a number of causes 

for the departure of effective tax rates from those specified 

in the Internal Revenue Code. Over the years, remission of 

tax has been used as a means for effecting non-revenue 

Federal policy objectives. We have noted the several 

preferential deductions from pre-tax incom~ to arrive at 

taxable income; when these are restored to better measure 

before tax income, effective tax rates fall. Additionally, 

two credits against income tax otherwise due that year were 

available in 1972. One was a 7 percent investment credit (4 

percent for regulated utilities) for the purchase of certain 

kinds of depreciable assets; the other was a credit of 20 

percent of certain expenses incurred in the employment of 

welfare recipients (usually unemployed mothers with dependent 

children), commonly referred to as the "work incentive 

program" (WIN). since both these subsidies are paid via a 

reduction of tax otherwise due, the earning of these 

subsidies naturally reduces the numerator in effective rate 

calculations and, hence, apparent effective tax rates. 

The magnitude of the effect of clearing subsidies 

through the tax system on computed effective tax rates among 

industries will depend on the degree to which the activities 
18 

subsumed in the industries are favored by tax subsidies. 

Moreover, most of these subsidies are capital related, i.e., 

in the form of extra deductions connected with the 

acquisition and use of certain kinds of equipment, or as an 

investment credit for other kinds of capital equipment. 

Consequently, they tend to be of relatively less importance 

to smaller businesses, for, in any industry, small businesses 

are typically more labor, less capital, intensive. Tables 2 

(for worldwide income) and 3 (domestic income) illustrate 

these differentials in tax subsidies by type of activity and 

size of enterprise. 

In Table 2, effective worldwide tax rates for 

corporations in 19 industries are listed in descending order 

of tax rate. The highest industry tax rate, 59.4 percent, is 

that for corporations engaged in all stages of the petroleum 

and natural gas industries, except natural gas distribution; 

the lowest worldwide tax rate is that for banking, 19.4 

percent. The low rank of banking simply reflects the 

magnitude of their tax subsidy in the form of artificial bad 

debt deductions and their institutional capacity to hold 

bonds yielding tax-exempt interest. 
19 

However, as noted earlier, the petroleum and natural gas 

worldwide effective tax rate is swollen by the ambiguous 

character of most of the payments they are required to pay 

host countries: since the host country is both the taxing 

power and the original owner of the mineral resources, the 

host country is able, under its tax laws, to extract from oil 

companies a share of the companies' income from oil and gas 

discovery that, in a property system like that of the United 

States, would accrue to the companies or to co-owners of the 

mineral rights. Under the tax laws and regulations 

prevailing in 1972, a large volume of these ambiguous "taxes" 

were regarded as shares of before-tax income paid as taxes 

and this had the effect of producing a 59.4 percent effective 

worldwide rate. Since there is no analytical basis for 

disaggregating oil company payments to foreign governments 

into those which might legitimately be called an income tax 

and those that represent an allocation of before tax income 

284-2?8 0 - ?8 - 4 
20 

to the mineral owner, we may obtain a more reasonable measure 

of the taxability of income in this industry under u.s. tax 

laws by excluding the confounding foreign items from both 

numerator and denominator. This is done in Table 3. Arrayed 

by size of effective tax rate on U.S. income, (see Table 3} 

petroleum and natural gas companies rank 17th among the 19 

industry groups with an effective tax rate of 24.7 

percent.l2/ 

Excepting this difference in ranking in the two tables 

of effective tax rates, the other industries' rankings are 

quite stable. "Other manufacturing," which includes the 

manufacture of motor vehicles, chemicals, electrical and 

electronic equipment, among others (See Appendix}, is subject 

to the highest rate of tax, 41.9 percent on worldwide income, 

42 percent on U.S. source income. The median industry 

worldwide rate of tax, 33.1 percent, was experienced by the 

ferrous metals group (iron mining, steel manufacture, etc.): 

the median tax rate on U.S. source income, 31.6 percent, was 

experienced by the services industries. 

12/ This effective tax rate does not reflect the benefit of 

expensing intangible drilling costs of wells that later prove 

to be productive. As previously noted, the information 

required to adjust taxable income for this preferential 

deduction is not available. 
Banking is consistently taxed at low rates, 19.4 percent 

worldwide, 18.6 percent on u.s. source income. 

21 

Within industry groups, effective tax rates by size of 

corporation generally reveal the expec :E d pattern: small 

corporations experienced lower effective tax rates than did 

the larger. This may be seen in Tables 2 and 3 by comparing 

the industry-wide effective tax rates with those in the 

adjoining column that represent the effective tax rates for 

all corporations in that industry grouping with less than 

$1,000,000 of assets. In Table 2 (worldwide tax rates), 

small corporations e~perienced lower effective tax rates than 

the industry average in each category, save ferrous metals 

and banking; in Table 3 (U. S. tax rates), the same condition 

prevails, except in banking alone. 

Tables 2a and 3a present the detailed effective tax 

rates on worldwide and u.s. source income, respectively, by 

asset size of corporations. The patterns in these latter 

tables, due to the variance necessarily introduced by smaller 

numbers in the larger size classes, are far less regular. 

For example, in Table 3a, the 5 largest corporations in the 
22 

nonferrous group experienced an 11.2 percent effective tax 

rate on U.S. source income because, in 1972, in addition to 

tax subsidies in the form of percentage depletion allowances 

in excess of cost (which expands the denominator), these 

firms earned maximum amounts of investment and WIN credits 

(which diminish the numerator). Smaller firms in this 

industry group, being less likely to both engage in mining 

and to make comparatively large volumes of investment in 

qualified property, experience lesser reductions from 

statutory rates. 

Nevertheless, except in banking, the two smallest size 

classes, which overall encompass 75 percent of all 

corportions subject to income tax, invariably experience 

effective tax rates well below the industry average in any 

industry group. In banking the exception to this rule 

reflects the fact that inclusion of tax-exempt bonds in bank 

portfolios and the ability to form nonbanking subsidiaries 

that engage in equipment leasing, and hence earn investment 

credits, is a function of bank size. 
23 

IV. Concluding and Precautionary Comments. 

The effective tax rate tabulations reviewed in this 

report are the most comprehensive set of such computations 

prepared by the Treasury Department. As later years' data 

become available, they will be processed and published as 

resources permit. In this first release of such material it 

is appropriate to add some brief comment on comparisons 

between these effective tax rates and others which are 

published from time to time that are derived from 

corporations' published financial statements. It is a lso 

appropriate to conclude this report with some observations on 

the limitations of effective tax rates as guides to an 

appraisal of the characteristics of the tax system. 

A. Comparisons with effective tax rates based on 

published financial statements. 

Effective tax rates here presented have been derived 

from income tax returns. These will not be directly 

comparable with superficially similar effective tax rates 

computed from data extracted from financial statements 

published by the same corporations for the same year. The 

reasons for this state of affairs have to do both with 
24 

measures of "taxes" in the numerator and of before-tax 

"income" in the denominator. We may summarize these 

differences as follows: 13/ 

(1) Consolidation rules. 

The rules for consolidating subsidiaries are different 

for tax and financial reporting. For tax purposes, the 

criteria for consolidation include the requirement that only 

corporations chartered in the United States may be 

consolidated and that there be ownership by the parent 

corporation of at least 80 percent of the subsidiaries 

consolidated. For financial reporting, any corporation 

wherever chartered may be consolidated by another corporation 

if the latter corporation maintains at least 50 percent 

ownership of the former. In general, this means that neither 

13/ For a more detailed exposition of the problems in 

deriving effective tax rates from corporations' financial 

statements, see Pitfalls in the Computation of "Effective Tax 

Ratesw Paid by Corporations: OTA Paper No. 23: u.s. Treasury 

Department (July, 1977). 
25 

the worldwide tax nor the worldwide income reported on tax 

returns and financial statements will be the same because the 

reporting entities do not correspond.!!/ There is no 

practical way to reconcile these differences. 

(2) Income measurement rules. 

Since there is no set of universal rules for income 

measurement, even in those cases where the reporting entity 

is the same for both tax and financial accounting, before-tax 

incomes in tax returns and financial statements will differ. 

Accepted financial accounting principles afford one 

(nonuniversal) measure of before-tax income: the Internal 

Revenue Code another measure. Although there are many 

differences- between tax and financial accounting rules, the 

14/ Note should also be taken of differences between the 

reporting of foreign source income. In financial reports, 

all income of consolidated subsidiaries is reported on the 

same accrual basis. In tax returns, only the foreign source 

income of subsidiaries chartered in the United States is 

presented on an accrual basis: the income of subsidiaries 

chartered in foreign countries is reported only to the extent 

"repatriated" or paid as dividends to the U.S. parent 

corporation. 
26 

most significant have to do with accounting for capital 

consumption -- depreciation and depletion. In Section II, 

above, we noted that tax rules for these allowances 

incorporate features intended to provide a subsidy for 

specific kinds of investment and economic activity, and, 

where possible, we adjusted "taxable income" accordingly. 

Nevertheless, there is in many instances a remaining 

difference between the "adjusted income" reported here and 

the before-tax financial income which would be reported by 

the same corporations due to their use of financial 

accounting depreciation formulas that recover depreciable 

capital costs more slowly. On this account, more often than 

not, before-tax financial, or "book," income will exceed the 

"adjusted" income measure used in this r eport and this will 

raise a reconciliation issue, to which we now turn. 

(3) Accounting for "taxes." 

"Deferred taxes." 

When financial accounting for depreciation differs from 

that used for tax purposes, the accepted accounting procedure 

for reconciling the difference between the two measure of 

before-tax income, often referred to as "normalization," 
27 

gives rise to a quantity called "deferred income taxes." 

This item, of course, never appears in a tax return, for tax 

accounting merely requires the derivation of taxable income. 

When the method for determining the allowance for 

depreciation for financial accounting purposes differs from 

that allowed in tax accounting so that the current year 

financial allowance is less than that used in computing 

taxable income, say because financial accounting employs less 

"accelerated" methods and/or longer lives, then the beforetax financial income measure will exceed taxable income. 

Inasmuch as this difference between financial and tax 

accounting procedures essentially involves the time 

distribution of depreciation allowances which ultimately must 

aggregate to the same quantity, namely the cost of the 

depreciable assets, the difference between financial and 

taxable income, and hence the tax liability, must logically 
be treated as a "deferral" of taxable income and a 

corresponding tax liability generated by this year's 

before-tax income. 15/ Thus the accepted accounting 

procedure requires that the amount of tax "deferred" be 

included with the net tax due the current year as "tax 

28 

expense" the total of which when subtracted from before-tax 

(financia l) income yie lds "ne t" or after-tax (financial) 

income. 

If one is to compute a n eff ective t a x rate from 

financial statements, then, the obse rver must decide whether 

he be lieves the financial statement me a sure of depreciation 

is mor e nearly correct, in a give n yea r, than the tax return 

me asur e of depreciation. 

~I Since the preparer of a f inancial statement must certify 

the "correctness" of reported before-tax income, he is 

obligated to use his measure of depreciation for the 

ye ar as "correct." The departure from this by the 

Interna l Revenue Code is, from this point of view, an 

aberration. 
29 

If he concludes the tax measure of depreciation is 

more nearly correct, then he should reduce 

before-tax (financial) income by the apparent 

understatement of depreciation and ignore "deferred 

tax." He should compute the effective tax rate from 

the financial statement by dividing income taxes due 

that year by the adjusted measure of before-tax 

income. 

If he concludes the financial statement of 

depreciation is more nearly correct, he must then 

estimate the probability that the "deferred tax" 

will ever be paid, and he must adjust the numerator, 

and/or denominator accordingly. There are two 

procedures that might be used for the adjustment: 

one follows a cash accounting approach, the other 

accrual methods. 

Cash accounting: 

Permanent deferral: If the observer believes that 

the corporation will continue to replace its depreciable 

capital indefinitely, then he will conclude the probability 

of repayment of "deferred tax" is zero. In this event, under 
30 

"cash accounting" rules, "deferred tax" may be ignored since 

it will never be repaid; and an effective tax rate would be 

computed by dividing the remaining tax due by the before-tax 

income reported in the financial statement. 

Temporary deferral: If the observer believes that 

the corporation will experience a contraction in the near 

future, the "deferral" of tax reported in the current year is 

only temporary, for when failure to replace occurs, the 

relationship between financial and tax accounting 

depreciation allowances reverses and "deferred tax" will be 

repaid. It is the present value of this future payment of 

tax which, when added to tax due for the year, enters the 

numerator of an effective tax rate calculation , with 

financial before-tax income in the denominator. This 

involves some accrual procedures to account for the 

likelihood of future events. 

Accrual accounting: Under this approach, the 

adjustments entail consistent accrual of tax expense for the 

year regardless of the form in which the tax is "paid" and 

corresponding adjustments to financial before-tax income. 
31 

Permanent deferral: If the probability that the tax 

will ever be repaid is zero, in effect the Treasury is making 

a nontaxable grant of the "deferred tax" to the corporation. 

Then this amount should be added to the reported financial 

before-tax income to signify the accrual of this income to 

the corporation during the report year. Since the tax 

generated by the corporation during the year is the sum of 

"deferred tax" plus tax otherwise due, this sum should be the 

quantity divided by the adjusted financial before-tax income 

to compute an effective tax rate. Altogether, permanent 

deferral entails two transactions: generating a tax 

liability during the year, part of which is "paid" in the 

form of a noninterest-bearing IOU; the other is recognizing 

that the future payment of the IOU is unlikely to occur, an 

implicit increase in the year's income resulting from the 

corporation's investment in property accorded preferred tax 

treatment. 

Temporary Deferral: In this event the observer must 

again compute the present value of the tax to be paid in the 

future. The difference between this amount and the "deferred 

tax" for the year is a gain to the corporation. Then the 

amount of this gain, which is less than the total "deferred 

tax• should be added to the reported financial before-tax 
32 

income for use as a denominator in computing an effective tax 

rate. The numerator in this case, as in the case of 

permanent deferral above, includes both tax otherwise due and 

(total) "deferred tax." 

(b) Other years• transactions in the current year tax 

account. 

We have already noted that the tax a ccount is used to 

clear refunds and subsidies in the form of credits in tax 

returns. The same usage occurs in financial accounting. 

Howeve r, the problems posed by this usage in financial 

statements are more severe because the curre nt yea r's tax 

account will include refunds due to the carryforward of 
33 

unrequited losses and credits attributable to prior years.l6/ 

The effects of these non-current-year transactions need to be 

removed from the financial statement measure of tax in order 

to obtain the amount of tax attributable to this year's 

pre-tax income. 

l6/ Problems posed by the financial accounting treatment of 

the investment credit should also be noted. There is no 

prescribed accounting standard for presenting the impact of 

the investment credit earned during a report year. Under one 

approach, the investment credit is simply treated as a 

"reduction of tax" in the year earned. Since the aritnmetic 

of this procedure merely reduces the provision for income tax 

that is subtracted from income before-tax to derive ~net 

income", this is called "flow-through." An alternative 

procedure treats the investment credit as a subsidy received 

from the government, the value of which is distributed over 

the life of the qualified investment. Provision for income 

tax is reduced only by the amount of the subsidy expiring during the year, not by the creddit earned that year. Since 

this method distributes the "reduction in tax" over the life 

of the assets rather than all in the year the credit is 

earned, the procedure is called "normalization.H Obviously, 

one needs to know how a corporation treats the credit if he 

is to use the "taxes" reported as the numerator of an 

effective tax rate calculation. 
34 

The information needed to effect all these adjustments 

to financial reports of income and taxes is rarely available. 

The recent Federal Trade Commission computation of effective 

tax rates paid by manufacturing corporations, submitted in 

testimony before the Subcommittee on Antitrust, Consumers and 

Employment of the House Committee on Small Business (March 

21, 1978) illustrates these difficulties. That report, 

based on financial data submitted to the FTC quarterly by a 

sample of manufacturing corporations could not deal with 

"deferred taxes" by either of the two options mentioned 

above. For this reason, its reported effective tax rates are 

overstated. Nor could it rectify the annual "provision for 

Federal income taxes" to eliminate the embedded clearance of 

other years' transactions. The effect of this confusion of 

elements in the effective tax rate numerators is not 

predictable. 

Due to all these difficulties in the use of financial 

statements, plus the broader coverage of corporations by size 

and industrial classification available in tax returns, and 

notwithstanding the remaining omissions from adjusted taxable 

income that have been noted previously, tax returns appear to 

afford the single best source of data on the taxability of 

corporation income. 
35 

B. Interpretative precautions. 

The divergence between effective tax rates and statutory 

rates and the wide disparities in tax rates experienced by 

corporations in different industries exhibited in this report 

cannot be viewed as surprising. Since 1918, when Congress 

enacted the progenitor of percentage depletion in order to 

stimulate the discovery of additional petroleum reserves 

because gasoline supplies were then in dangerously short 

supply, the income tax has been utilized as a vehicle to 

modify resource flows i n the private sector of the economy. 

Some of these uses of the tax laws, like percentage 

depletion, have been intentional: artificial bad debt 

deductions have been provided to facilitate the expansion of 

banking services; capital gains treatment was afforded timber 

production as a conservation measure; the investment credit 

was aimed to subsidize growth of the private capital stock to 

increase productivity per man-hour; the WIN credit was 

intended to encourage the employment of welfare mothers; the 

Western Hemisphere Trade Deduction was intended to foster 

greater participation of u.s. companies in the development of 

this part of the world; exemption of interest paid by state 

and local governments is intended to enable these 

governmental units to borrow more cheaply; and rapid 
36 

write-offs of depreciable assets have been provided to 

subsidize a wide range of particular kinds of investment 

perceived to be in the public interest, ranging from 

ohildcare facilities to pollution control equipment. Others, 

like intangible drilling cost deductions and similar 

treatment of other preproduction expenses, have crept into 

the tax laws inadvertently but were subsequently either 

sanctioned by explicit enactment or by refusal to amend the 

tax laws to eliminate the inadvertent preference. 

(1) Implications of below statutory corporate effective 

tax rates. 

In view of this history, it is important that the 

existence of low effective tax rates not be misinterpreted to 

mean only that some owners of corporations are not paying 

their fair share of tax and thereby enjoy higher 

after-corporate-tax rates of return. Indeed, as indicators 

of after-corporate-tax returns, effective tax rates are 

grossly misleading. If one compares the industry categories 

shown in Tables 2 and 3 as paying above average effective 

rates with those paying below average rates, he would be 

hardpressed in terms of general knowledge of the size, rate 

of growth and stockmarket status of their shares, to 
37 

determine which group of stockholders was enjoying the 

highest after-corporate-tax rate of return. Does one suppose 

the stockholders of automobile, chemical, computer and 

electrical machinery manufacturing companies eke-out a lower 

after-corporation-tax rate of return than do stockholders of 

banks and coal companies because the latter experience less 

than half the effectiv~ tax rates of the former? The answer 

clearly is n?~ ative. Because capital owners are concerned 

with after-corporation-tax rates of return, not with 

before-tax incomes, it is after-tax rates of return that are 

equalized through the mobility of capital. Flows of capital 

between industries ensures that the only difference between 

high- and low-tax rate industries will be higher pre-tax 

rates of return in the former, lower rates in the latter. 

The subsidized industries will have lower pre-tax profits 

because their expansion in response to the subsidies they 

have received either depresses market prices of their output 

or causes them to bid-up the costs of labor and materials 

they use. 

The variances in industry effective tax rates are thus 

not indicators of shareholder benefits. Rather they are 

crude indicators of the ways in which the tax laws have been 

used to influence the pattern of economic activity in the 
38 

private sector. Resources have been pushed into the low 

effective tax rate industries and away from high tax rate 

industries. 

(2) Effects on fairness of the tax system. 

In effect, tax subsidies substitute for payments to 

producers they would normally receive in the form of market 

prices. Inasmuch as tax subsidies are in the form of 

tax-exempt income, they also permit taxpayers with above 

average incomes to escape paying their fair share of tax. 

For example, because the interest on state and local bond 

issues is tax-exempt, the bonds sell to yield returns that 

are below the yields of taxable issues; this is the subsidy 

element of the tax preference accorded state and local bond 

issues. Historically, the spread between taxable and 

nontaxable bonds has hovered around 30 percent -- if 10 

percent is the yield on taxable securities, the comparable 

tax-exempt yield would be about 7 percent. Thus a purchaser 

of tax-exempt bonds pays, in this example, an "effective tax" 
39 

of 30 percent, and he "pays" this tax when purchasing 

tax-exempt bonds no matter what his income status otherwise 

would be. In this sense holders of tax-exempt bonds who 

would be subject to tax at more than 30 percent are not 

paying their fair share of tax. !l/ 

!ll In the effective rate calculations in this report, 

tax-exempt interest was simply added to the denominator. 

This procedure has the unfortunate effect of exaggerating the 

nontaxability of this form of income. An analytically 

correct way to deal with tax-exempt interest would be to 

include in the denominator the taxable equivalent of 

tax-exempt interest and include in the numerator the "implict 

tax" associated with the spread between the taxable and 

nontaxable yields. For example, assume $10 would be the 

taxable yield for a security held by a bank and the 

tax-exempt interest it actually earns is $7. If we merely 

express actual taxes paid, $0, as a percentage of the actual 

income earned, $7, we obtain an effective tax rate of zero. 

But, if we add the $3 spread to $7 to derive $10 of income in 

the denominator and then place the $3 as an implicit tax in 

the numerator, we obtain the correct effective tax rate, 30 

percent. This analytically superior treatment of tax-exempt 

interest could not be used for lack of necessary data in tax 

returns. 
40 

Similarly, the investment credit is a form of tax-exempt 

subsidy which happens to be cleared through the tax system. 

As such, $1 of credit is clearly worth less to a small 

corporation subject to tax at 22 percent than to a larger 

corporation subi ~t to tax at 48 percent. For the 22 

percent taxpayer, $1 of credit substitutes for a market 

(pre-tax) income receipt of only $1.28; for the 48 percent 

taxpayer, the credit substitutes for $1.92 in market income. 

18/ Again, in this sense, recipients of the investment and 

WIN tax credits fail to pay their fair share of tax. 

18/ In the effe ctive tax calculations, the investment and 

WIN credits are treated as "reauctions in tax." Another way 

to view these credits, which are almost indistinguishable 

from tax-exempt cash grants, is simply to treat them as such. 

In this event the before-credits tax would appear in the 

numerator of the effective tax rate calculation, and the 

credits earned would be added to the denominator. The result 

of this alternative calculation would be a higher effective 

tax rate than that computed by the procedure used in this 

report. 
41 

In sum, the pernicious aspect of tax subsidies is not so 

much that they substitute for explicit subsidies regarded by 

the Congress as serving the public interest and thereby cause 

efffective tax rates to appear low, but that subsidies 

provided through remissions of tax almost invariably provide 

subsidy benefits in nontaxable form.l9/ This has two highly 

undersirable effects. First, in an economy such as the 

United States, market prices serve to value resources. Gross 

National Product, for example, is measured in market prices. 

But market prices are generally in pre-tax terms. Thus, when 

the government wishes to carry out a procurement or other 

expenditure program, the dollars it budgets must be in 

pre-tax terms: and this fairly measures the economic 

significance of the programs. However, if government carries 

out its programs either by the expenditure of nontaxable 

funds, as in the case of unemployment compensation and social 

19/ One recent exception to this generalization is the New 

Jobs Credit enacted in 1977. This credit is structured so 

that it enters the taxable incomes of employers (if wages do 

not rise) or employees, just as would an equivalent wag~ 

subsidy paid in cash by the Department of Labor. 
42 

security payments, or by remission of tax--a nontaxable "tax 

expenditure"--the budgetary impact understates the economic 

magnitude ot the government program: if the same program 

that is financed by tax-exempt expenditures or nontaxable tax 

subsidies were financed by normal expenditure programs, the 

dollar cost would be properly seen to be higher. By 

appearing to be "cheap," tax subsidies may be overused. 

Second, in a tax system that imposes progressive rates, 

implementation of government programs by nontaxable 

expenditures and tax subsidies confers benefits that are 

proportional to the income status of the taxpayer. Put 

another way, such programs enable taxpayers to legally avoid 

paying their fair, statutory, share of taxes to support the 

activities of government, including the activities 

subsidized. 
Table 1.-[ncome Heaauroa, United States and Foreign Tax Liabilitlea; For Nonfinancial 

Corporatioas Filing Income Ta:x Returns, By Size of Adjusted Aaseu ; 1972 

Asset Size {dol1ars2 

1 : ~o ooo : 2so,ooo: t , ooo,ooo: 5,ooo ooo to,ooo oooa5,ooo ooo:~o.ooo,ooo .1 bill. :.25 btil.:.s bill ~ bill. 

All under : under : under : under : under : under : under : under : : under : under : or 

sizea : so, ooo : 250 ,000 : 1, 000,000 : 5, 000,000 :l0,000,000:25,~,00050,000,000:l00 000 000 25 bill. :.s bill. :1 bill. :more 

1. (dollar a.ounta in ailllona) 

All corpora tJ.ons , with and without 

basic worldwide 

taxable incoi!K!: 

Number ..••.•.•• (a) 1, 625 ,lll 716,647 604 . 393 232 . 789 58, 267 6,161 3,606 1 , 363 732 585 247 148 175 

U.S . tax, after 

credita •...... (b) 29,130 211 1, 254 2, 738 3, 643 1,400 1,691 1., 373 1,514 2,285 2 ,1.90 2 . 336 8,498 

Ba•ie worldwide 

taxable income(c) 75,150 -253 3, 810 6,670 7,028 2,699 3,287 2. 907 3,317 5 , 313 5, 289 5,952 29,130 

effective til" 

rate . . . ...... . (d) 38.8 - 32 . 9 41.0 51.8 51. 9 51.4 47 . 2 45 . 7 43. 0 H . 4 39 . 2 29 . 2 

II. 

Cocpo ratioM w:itb 

baaic world·dtle 

:income tar.able aa suth (excludes 

Subchapter S and 

DISC corporstions): 

Nwober ••••• . •• . (a) 752,331 235,978 320,396 149,151 38, 008 3,989 2,417 928 532 451 198 129 154 

u.s. tax, after 

credita .•• . •. . (b) 29,100 211 1 , 253 2, 736 3, 641 1,399 1,688 1,372 1, 512 2,283 2,189 2,333 8,481 

Sa.sic worldwide 

taxable income(c) 84,280 i,003 4,741 7,537 8,585 3,221 3,904 3 , 227 3, 660 5,870 5,803 6, 779 29,950 

Effective tax 

rate •. .•... . . . (d) 34.5 21.0 26.4 36.3 42. 4 43.4 43. 2 42.5 41.3 38.9 37.7 34.4 28.3 

Ill. 

Co rpor ations ~i h 

adjusted .,orldwide income: 

Number .. .. . .... (a) 871,865 300, 486 357 , 612 162,049 41, 940 4, 451 2,707 1, 038 593 494 203 134 159 

Worldwide tax 

liabilities, 

oet of u.s. ioveetm~t and 

WlN era~ its ..• (b) 38 , 220 269 1, 348 2,811 3, 725 1,443 1,761 1,454 ',638 2,632 2,538 2,985 15,620 

AdjUJtted world- wide income .. • (e) 93,440 1,305 5,315 8,186 9, 382 3,543 4,303 3,542 4,036 6,449 6, 251 7,342 33,780 

Effective tax 

rata •••••..•.. (d) 40.9 20.6 25.4 34 . 3 39.7 40.7 40 . 9 41.0 40. 6 40.8 40.6 40.7 46.2 

~ 

Office o! the Secr e t ary of the Treasury ... Officnof Tax Analysis 
IV. 

Co poration~ with 

U.S. source adjusted income: 

Number . . .••... . . (a) 

U.S. tax l1cb11ity 

after investment 

and ~N crcdit.(b) 

Adjusted U.~. 

source income .. (c) 

Effective tax 

rate ••. . •.. •• . • (d) 

v. 

Corporations with 

foreign source income: 

Number •. . . . .. . ... (a) 

Foreign tax 

liabUitiea ••••. (b) 

l'oreign souru incoa>C ••. . .•. . .• (c) 

Effective tax 

rate . . .... . ..... (d) 

All 

:shea 

871,548 

29,610 

78,330 

37.8 

4,240 

8,530. 7 

15,210.0 

56.1 

Table 1.-lnco~ Measures, Uni~ed S~atee and Foreign ~ax Liabilities; For Nonfinancial 

Corpora~ions Piling Inco~ Tax Rcturna, By Size oC Adjusted Aaseta; 1972 

Asset Sfr.e lcfollars > 1 : 50,000 : 250,000 : 1,000, 000 : 5,000, 00Ql0,000,000:25,000,000: 50,000,000: 1 bill.: .25 bUl.: .25 bill~ 1 bill. 

under : under : under : under : under : under : under : under : under : under : under : or 50, 000 :_~50 _(tOQ_ ;.1,000 000 : 5, 000, 000 :10 , 000, 00025,000 , 000:50,000,000:100,000,000:25 bill.: .5 bill.: 1 bill~ more (dollar a.mounta in aoillions) 

300,U5 357,571 161,992 41,856 4,430 2, 692 1 , 029 579 485 199 128 152 

268 1, 347 2,808 3,696 1,419 t, 719 1, 391 1, 533 2,313 2, 218 2,374 8,521 

1,302 5,310 8,174 9,298 3,473 4, 177 3,375 3,760 5,676 5,348 5,830 22,600 

20.6 25.4 34 . 4 39. 8 40.8 41.2 41.2 40.8 40.8 41.5 40.7 37.7 

141 423 659 l,ll1 377 443 276 221 266 123 94 106 

0.4 0.5 2.6 23.9 23.7 39.9 61.4 102.2 308.9 319 .4 594.0 7,053.8 

3.6 3. 2 U.2 85. 6 69.4 126.9 172 .4 305 . 8 819 . 9 889.6 1,527.3 11.190.0 

11.3 14.3 23.1 28.0 34.2 31.4 35.6 33.4 37.7 35 . 9 38.9 63.0 

Office of l:be Secretary of the TrellSury 

Office of Tax Analysis 

,. 

l> 
Tabl~ 2. - Effective Tax Rat es on Wo rldwide I ncome, 

All Corporations With Income, and Corporations 

With Under $1,000,000 of Assets, by Industry ; 1972 

Industry 

Petroleum and natural gas 

~wnufacturing , not e lsewhere classified 

Wholesale and retail trade 

Credit dealers, brokers, insurance agents 

Paper and allied products 

Communications 

Electric, gas, and sanitary services 

Lumber and wood products (nonfurniture) 

Contract construction 

Primary metals: ferrous 

Primary metals: nonferrous 

Services 

Transportation 

Real estate 

Agriculture, forestry , and fisheries 

Unclassifiable businesses 

Coal Mining 

Mining, not elsewhere classified 

Banking 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

All Corporations 

- - Industry : Effective 

rank : tax rate 

--- ---... - -p e r 

1 59 . 4 

2 41.9 

3 38.8 

4 38 . 1 

5 37.4 

6 35.7 

7 35 . 4 

8 34.2 

9 33 . 7 

10 33.1 

11 32.4 

12 31.6 

13 30.3 

14 28.9 

15 28.0 

16 27.0 

17 26 . 7 

18 26.2 

19 19.4 

Corporations with under $1,000,000 

of Assets 

Effective : Corporations 

tax rate : included 

c e n t-------------------

23.8 85.1 

32.3 86.2 

32.0 94 . 9 

29.1 95.1 

32 . 4 79 . 5 

27.6 79.6 

28.0 89 . 8 

32.2 87 . 5 

28.4 95.2 

33.2 75.7 

25 . 4 72.4 

26 . 5 97 . 5 

26.6 94.3 

26 . 2 94.7 . 23 . 6 94.4 

25 . 4 98 . 8 

24.7 84.3 

22.4 76.8 

26.8 6.7 

.t>-

Vl 
Table 2a.-Effective Tax R&tea on Worldwide Income, All Corporations With income, by Industry and Size of Assets; 1972 

50,000 : 

Asset size ~dollars~ 

250,000 :1,-oOOi,OOO: 000 000:lO OOO OOO:Z 000,00~: 50,000 ,000: .1 bill. : . 25 b.lll.: . 5 bill.: 1 bill. 

Industry : All : under : und.er : under : under : under : under : under : under : under : under : under : or 

iu• : sizes : 50, 000 : 2501 000 :1 ,000,000 : 5 1000,000:10 1000,000:25 1 000 1000:50 1000,000:100 ,000,000: .25 b111. : .5 b1ll. : l bill. : ..,re 

(dollar amount• in thousanda) 

Petrolaum & 

natural s•• ..... .... ... 3,896 1,154 1,443 718 392 60 41 31 13 16 5 4 19 

b ........... 6,154,912 1,234 7, 169 9, 435 32 ,160 11, 957 15,689 35, 676 12, 693 30, 385 70,566 106,697 5,821,312 

c ... .. ...... 10.370,000 6, 460 32,363 36.108 104 . 081 46 .976 60,184 lll3.2uO 56 , 873 115,072 180,802 205,800 9. 424,943 

d ........... 59.4 19.1 22.2 26 .1 30.9 25. 4 26.1 34.5 22.3 26 . 4 39.0 51. 8 61.8 

Hanufacturing 

not elsewhere 

classified a ........... 101, 120 24 , 565 37,698 24,860 10, 300 1 , 547 1,008 1 265 234 96 65 49 

b ......... .. 17,740 ,000 24,674 176,949 661,313 1, 369,089 682,593 914,4 79 797 ,999 997,162 1, 709,830 1, 819 , 956 2, 026 . 364 6 , 559,199 

c .... .. ..... '•2, 340, 000 118,784 712.213 1,843,761 3,330,523 1,595, 464 2,145,554 1,1\91, 328 2,331,000 4 , 056 ,048 4,303.4.58 4, 783, 185 15,230,000 

d ...... . .... 41.9 20. 8 24 . 8 35 . 9 41.1 42 . 8 42.6 42. 2 42.8 42. 2 42.3 42.4 43.1 

Wlloleaa1e 

and ret.11-

trade 

a ...... ..... 302,573 84 , 828 139 . 258 62,953 13 ,560 1,020 570 19; 90 62 18 10 8 

b ....... .. .. 5,600 , 293 75 , 918 569 , 761 1,208,577 1, 208, 778 322 ,161 333, 525 283,117 192 ,095 243 ,916 181,670 227 , 769 753,006 

c .... ....... 14, 420,000 351, 246 2,ll9 ,501 3,331,895 2, 904,028 756 ,139 799,710 64l, i179 464 ,011 574.360 442,469 560,317 1,477 ,513 

d .... . ... .. 38.8 21.6 26 .9 36.3 H. S ~2.6 41.7 44 .1 41.4 42.5 41.1 40.6 51.0 

Credit de ~ le rs, brokers. insurance 

agents 

....... ..... 49 ,186 22, 228 18,414 6,124 1,836 224 201 77 41 23 9 ' 4 

b ........... e48, 433 20,381 74 ,579 85, 942 113,380 50, 480 74 , 247 41 ,1')1 87,376 54.318 38,034 87 ,926 120, 362 

c ........... ~ ,225 ,536 96,013 275.261 251,113 283,879 119 , 061 176,133 100.215 212,911 135, 045 92, U6 197 . 713 281,077 

d .......... . 38 .1 21. 2 27.1 34.2 39.2 42.4 42 . 2 41.1 41.0 40 . 2 41.3 44 . 5 42 . 8 

Paper ann 

allied 

products 

a . . ..... .... 2,284 177 780 859 312 50 43 ll 22 15 4 6 4 

b ..... .... .. 586, 804 78 3,284 21 ,485 36,527 19, 494 22,767 15,437 86,186 73,254 32,681 57.272 218 , 340 

c ...... . .... 1,567,136 862 15, 354 60,566 87,G6il 48,U9 58 ,622 38,93J 210,008 194,573 101 , 572 199 , 643 551,211 

d .... . •.••.. 37 . 4 9.0 21. 4 35.5 41.7 40.5 38.8 39.~ 41.0 37 . 6 32.2 28.7 39.6 

Co111111 unicatto.t~ 

a ... . ....... 3, 841 633 1, 686 739 619 66 44 15 15 10 5 - 6 

b ........ ... 1, 258 ,969 407 7, 215 10, 248 40,406 14 , 450 28,429 7,793 15 ,163 38,787 32 , 211 - 963, 451 

c .... . . .... 0 3, 528,297 2,318 29 , 270 33,065 108,091 37 ,280 68,940 20,079 44 , 598 96 , 046 87,472 - 2, 763, 893 

d ....... .... 35.7 17 .6 24 .6 31.0 37 . 4 38. 8 41.2 38.'1 34.0 40. 4 36.8 - 34.9 

a • Number; b • Worldwide tax liabilities net of U.S. inveec•ent and WIN credit; c • Adjusted worldwide income; d • Effect ive tax rate ~ 

"' 
Table 2a.-E!feecive Tax Race. on Wo rldwide Income, All Corporacions With Income , by Induacry and Size of Assecs; 1972 

Assec size (dollars~ 

1 : 50,000 : 250,000 : 1,000, 000: 5,000,000:10,000,000: 25,000,000: so.ooo,ooo: lbill. .25 bill.:.S bill. : l billion 

Induscry, : All : undar : under : under : under : under : under : under : undar : undar : undar : under : or icea> : sizes : :iQ ,OOO : 2~o QQQ :1,ooo, ooo : s,ooo,ooo:to,ooo,ooo:zs,ooo,ooo:5o,ooo,noo:loo,ooo,ooo: . 25 bill. : . 5 bill.: 1 bill. : 110re 

(dollar a.ounts in thousands) 

E1eetric, saa, 

and sanitary 

services 

a ... . . .... . .. 4,534 1,700 1, 755 615 173 35 60 29 25 41 34 26 42 

b •.••.•. . .. .. 1,363,293 646 7,350 12,989 9,556 6,146 19,124 23, 933 26 . 716 107 ,901 164,417 204,901 779 , 613 e ..... .. .... . 3,853, 979 3,802 31, 632 39,506 27,497 17 , 011 49.756 69,436 69,042 282 , 289 426,003 577,831 2, 269 ,124 

d .... .. ...... 35.4 17 .0 23.2 32.9 34.8 36.1 38.4 ::<~ 6 38 . 7 38. 2 38.6 35.5 34 . 4 

Lumb«r and 

wood 

produc ts (nonfumiture) 

o ............ 5,87l 913 2,641 1,586 591 74 39 10 6 8 

b ............ 437 . 308 865 10, 809 47,571 95 . 913 41,148 30,270 13 , 829 20 ,068 39,535 

c ............ ! , 219 ,036 4,352 47,516 132.257 242,519 102,758 77 , 234 39,097 55 , 877 117,125 

d ............ 34 . 2 19.9 22.8 36.0 39 . 6 40.0 39.2 ~5 4 35 . 9 33.8 

Contract 

construction 

a ... . . . ...... 73, 223 28,613 29,438 11,684 3, 036 250 132 ., 

... . 22 11 

b ............ 901,312 30, 711 133, 760 219,186 258,879 64,414 63,567 22,8!;1 40, 199 62,951 c •.•.... . .... 2,676,493 150,467 542 ,022 656,713 678,637 167,594 157,361 60, 511') 102,979 142,199 

d ......... .. . 33.7 20. 4 24.7 33.4 38 . 2 38.4 40.4 37 . 7 39 . 0 44.3 

Primary 

metalsfe rrous a ........... 1,730 405 496 408 282 53 33 19 11 10 5 - 7 

b ........... 447,086 519 2, 514 U,139 46, 441 22,205 28, 828 25 ,621 21,680 72.722 25,337 - 189,926 

c: ••.•.• ••••• 1,351, 713 2, 348 10, 208 30, 184 110,452 53, 547 65,761 63, 695 59 , 472 176,901 83,837 - 682,800 

d ... . ....... 33 .1 22 .l 24.6 36 . 9 42.0 41.5 43.8 40.2 36.4 41.1 30. 2 - 27 .8 

Unclaasifiablc 

businesses 

o .......... . 2,865 2,154 487 189 29 

b ...... ..... 8,698 2, 390 2, 188 1,933 1,531 c ........... 32,185 9,269 7,765 8,637 3,513 

d ........... 27.0 25 . 8 28.2 22.4 43.6 

Coal mining 

a . . . . .. .. . . . 737 177 248 196 70 19 10 10 3 

b ........... 52,752 126 1.438 3,026 6,798 5,458 4,410 4,17.> 4,4 14 

e .... . . ..... 197,596 577 5,655 12.315 21•, 831 19,836 17 ,651 21, 656 16 . 723 

d ........... 26.7 21.8 25.4 24.6 27.4 27.5 25.0 19 . 3 26.4 

a • NUIIber; b • Worldwide tax li.abilitie• net of U.S. investment and WUI crediu; c • AdjU8ted worldwide inco~~e; d • Effective tax rate ,. 

... 
Table 2a .-Effect1ve Tax Rates on Worldwide Income, All Corporations With Income, by Industry and Size of Assets; 1972 

Asset size (do1lora1 

i : : :1,000 ,000 : 5, 000,000:10,000. 000:25 , 000,000: 50,000 ,000: .l bill. : .25 bill.: .s bill.: 1 bill. 

Indus tTy : All : under : : : un<Ulr : under : under : under : under : under : under : under : or 

1 : sizes :5 000 000 :10 000 000: 25 000 000:50 Q!)O OO() :lOO ~Q_.0()(} :.2 5 blll.: .5 blll. : l bill. : 80re 

(dollar amounts ln thousand• 

IU!Ung n.ot 

elsewhere 

claasifiej 

a .... ... .... 1,863 - 752 679 248 47 21 11 

b .... .... .. 67,420 - 2,702 9,899 15,268 11,234 7. 435 8,586 c ... .. ....... .. 257,395 - 14 ,121 42 ,058 57 , 260 41,272 26, 299 33, 279 

d .......... 26 . 2 - 19 .1 23.5 26.7 27.2 28.3 2~.1 

Bonking 

a .. .... .... 17,947 - 385 823 5,787 3,774 3,528 1,573 897 601 227 ll7 78 

b .......... 1,646,672 - 1,562 3,282 76 , 063 100, 677 157,800 l33,218 134 , 872 220, 569 182 , 813 152,624 483,090 

c .. .... .... 8 ,495, 566 - 4, 895 13,180 365 , 883 530,487 869,165 697 , 609 675,026 1,042, 793 901,414 882 , 036 2,512 , 773 

d .......... 19.4 - 31.9 24.9 20.8 1.9 . 0 18.2 l 'l .l 20.0 21.2 20.) 17 .l 19.2 

a • Number; b • Wor ldwide tox liabilities net of U.S . inv,.atment and wtN credit; c • Adjusted worldwide income; d • Effective tax rate 

.-J_~ 

~ 

"' 
Table 3.-Effective Tax Rates on U. S. Source Income 

All Corpor ations With Income and Corporations 

With Under $1,000 , 000 of Assets, by Industry, 1972 

All corporations 

:Corporations with under $1,000,000 

of Assets 

l/ 

Industry 

~~nufacturing not elsewhere classified 

Paper and allied products 

Credit dealers, brokers, insurance agents 

Wholesale and retail trade 

Communications 

Electric. gas, and sanitary services 

Lumber and wood products (nonfurniture) 

Primary metals: ferrous 

Contract construction 

Services 

Transportation 

Primary metals: nonferrous 

Real estate 

Agriculture , forestry and fisheries 

Unclassifiable businesses 

Mining n~t elsewhere classified 

Petroleum and natural gas 

Coal mining 

Banking 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

Industry : Effective 

rank : tax rate 

Effective 

tax rate 

-----------------P e r c e n 1 42.0 32.3 

2 38.4 32.4 

3 38.3 29 . 0 

4 38.0 32 . 0 

5 36.1 27 . 6 

6 35.3 28 . ') 

7 34.6 32.? 

8 33.7 33.2 

9 33.4 28 ·'' 

10 31.6 26.5 

11 30.1 26. 6 

12 29.4 25.4 

13 28.9 26.2 

14 28 . 1 23.4 

15 27.7 26 . 1 

16 25.6 22 . 4 

17 24.7 23 . 8 

18 19 . 4 24 . 7 

19 18.6 26.8 

!1 See Appendix for detailed industry categories in groupings shown here. 

Corporations 

included 

t---------86~;------

79.5 

95.1 

94.9 

79.6 

89 . 8 

87.5 

75.8 

95 . 2 

97.6 

94 . 3 

72.6 

94 . 7 

94 . 4 

98.8 

76.9 

85.5 

84.3 

6. 7 

"" 1.0 
Table 3a-Effeet.ive Tax Rates on u.s. Souree lneom.e, All Corporat~ons with Ineome, by Industry and Size of Aosets; 1972 

Ass.et Size (dollars) 

50,000: 250,000:1,000,000: 5,000,000:10,000,000, 25,000.000 50,000,000:.1 bill. :.25 bill. : .5 bill. : 1 bill. 

All : under : unde'C : under : undar : under : under : under unde'C : unde'C : under : under : or 

Industry , item :sizes : 50,000 : 250, 000: 1 ,000,000:5,000,000:10, 000,000,25,000,000,50,000,000 100,000,000 •. 25 bill.: .5 bill. : 1 bill. : 1110rt! 

Manufa r.ur~ng , 

not elsewhere 

c lasdfied 

a............. 101,026 

b ............. 15,290, 000 

c . ............ 36,4.30,000 

d ............ . 

Paper and 

alli.ed 

products 

42.0 

. .. ....... ... . 2, 284 b............. 521,669 

c ............. 1 , 357 , 882 

d . .. ...... .. .. 

Credit 

dealers, 

brokers, 

insurance 

agents 

38.4 

a..... .. ... .. . 49 , 164 b. .... .. ...... 822,426 

c . .. .. ........ 2,147,277 

d ............ . 

Wholesale and 

rt!teil trade 

38.3 

24,565 

24 , 674 

118,784 

20 . 8 

177 

78 

862 

9.0 

22,228 

20,381 

96,010 

21.2 

a............. 302,511 84,828 

b • • . • .••••.• • • 5,290, 425 75,841 

c ••••••••••••• 13 , 920, 000 350, 117 

d ........... .. 38.0 

Couaunic:at1ons 

a. .. ....... .. . 3,841 

b ..... . . ...... 1,232,402 

c .. . ..... . .... 3,413,691 

d . .... . .. .... . 36. 1 

21.7 

633 

407 

2,318 

17.6 

(dol.lar amounts in thousands) 

37,683 24,852 10,276 1,534 

176,244 660,443 1,359,798 669,408 

709,889 1,840,506 3, 303,413 1,557,431 

24.8 

780 

3,284 

15,354 

21.4 

18,399 

74,560 

275, 231 

27.1 

35.9 

859 

21,465 

60,475 

35.5 

6,122 

85,596 

250,443 

.34.2 

41.2 

312 

36,523 

87,460 

41.8 

1,836 

112,952 

287,627 

39.3 

139' 258 62. 923 13' 545 

569, 760 1, 207' 296 1, 202' 369 

2, 117,564 3, 327,509 2,882, 017 

26. 9 

1,686 

7,215 

2.9,270 

24.6 

36.3 

739 

10, 248 

33, 065 

31.0 

41. 7 

619 

40,406 

108,091 

37.4 

43.0 

so 

18,810 

46 ,370 

40.6 

224 

50 ,057 

117,377 

42.& 

1,013 

317,498 

740,177 

42. 9 

66 

14,450 

37,280 

38 . 8 

1,002 429 

889,302 764,692 

2,071,128 1,789,779 

42.9 

43 

22,530 

58,0H 

38.8 

199 

71,710 

168,472 

42 .6 

567 

328,907 

785,031 

41.9 

44 

28,429 

68,940 

41.2 

42.7 

1.1 

l.S. 378 

38,387 

40 . 1 

76 

40, 989 

98,760 

41.5 

195 

269 ,661 

617,861 

43 .6 

15 

7,793 

20,079 

38.8 

255 228 

921,756 1,490,247 

2,134,216 3,49.7,982 

43.2 

22 

75,360 

181,41' 

41. 5 

40 

83, 1 69 

201,965 

41.2 

88 

189 , 843 

457,985 

41.4 

15 

13,762 

40,729 

33.8 

42 .6 

15 

72 ,670 

192,972 

37.7 

23 

52,145 

127,998 

40.7 

61 

220,127 

525,114 

41.9 

10 

38,464 

92,032 

4J..8 

93 62 

1, 546,463 1,606,829 

3,499 ,338 3 ,688,296 

44.2 

4 

30,312 

95,916 

31.6 

9 

36 , 736 

86,854 

42.3 

18 

167,395 

406,158 

41.2 

5 

31,948 

86,831 

36.8 

43.6 

6 

48,620 

170,936 

28.4 

4 

87,630 

192,559 

45.5 

9 

183,030 

448,136 

40.8 

a • Number; b • Worldwide tall 1ubiliti.es net of U.S. investment and WIN c r edit; c • Adjusted worldwide income; d • Effective t.all rat.e. 

Office of the SeC'Cet.ary of the Treasury 

Office of Tax Analysis 

--4 ~ 

47 

5,182. 941 

12,220,000 

42.4 

4 

.176 , 639 

409,722 

43.1 

7 

558 ,698 

1,267,055 

44.1 

6 

948,321 

2,694. 345 

35.2 

VI 

0 
Table 3a .- E£fecc~ve Tax Races on U.S . Source Income , All Corporations W1Lh 1ncome, by Industry and Size of Assets; 1972 

Asset S~e ~dollara2 

1 : 50,000 250, 000 :1, 000,000 : 5 ,000 ,000 :10,000,000: 25 ,000 , 000 : 50,000,000: .1 bill. :. 25 bill. :.5 bill . : 1 bill. 

Indust ry : All : under : under under : under : under : under : under : under : : under : under : or 

item : sl.z.e.s : 50 , 000 : 250, 000 t,ooo , ooo :5,ooo,ooo :1o , ooo, ooo :zs,ooo,ooo:5o , ooo , ooo:1oo , ooo ,ooo: . 25 bill. : . 5 bill. : 1 blll. : more 

(dollar amounts ln thousands) 

1!1ectr~c; . goa, and sanita ry 

servl ceo • •••• 0 ••• 0 0 0. 4,534 1, 700 1 , 755 615 173 35 60 29 2S 41 34 26 42 

b • ....•. . •.•. 1 , 354 , 513 646 7, 350 12,989 9, 556 6,146 19,124 23 , 727 26 . 716 107,058 164,417 204,187 772,597 

c .......... .. 3, 835, 767 3,802 31 ,632 39,506 27 ,497 17 , 011 49 .756 60, 054 69,042 280 , 523 426,003 574 ,492 2,256 , 438 

d ...... ...... 35.3 17.0 23.2 32.9 )/, .S 36. 1 38.4 3!' .5 38.7 38.2 38 . 6 35.5 34 . 2 

Lumber &nd 

wood 

products 

(nonfumt ture) a ............ 5, 871 913 2,641 1 , 586 591 74 39 tO 6 8 

b ... ......... 431,952 865 10,809 47,57l 95,856 41,036 30,256 13,821 20 , 033 39 , 480 

c .... ... ..... 1 . 248, 761 4, 352 47 ,516 132 , 257 242,087 102,434 76,850 39,044 55 , 710 U6,733 

d ........ .... 34.6 19.9 22 . 8 36 . 0 39. 6 40 . 1 39 . 4 35. 4 36.0 33.8 

Primary 

ZDeLa1&: 

ferrous 

8 •••.• 0. 0 . 0 • • 1 , 727 405 496 408 281 53 32 19 u 10 5 - 7 

b ............ 390, 370 519 2,514 11,130 45, 459 22 , 204 28,503 25,1?9 20,281 61, 842 22, 768 - 149,985 

c ...... ...... 1,157 , 523 2, 348 10,208 30,108 108,399 53, 546 64 , 866 60,904 55 , 498 152,213 76 ,480 - 530, 446 

d .••.. •. .. . .• 33.7 22.1 24.6 37 .0 41.9 H . 5 43. 9 41.1 36 . 5 40. 6 29 . 8 - 28.3 

Contract 

constTuction 

a ...... ...... 73, 215 28 ,613 29 ,438 11, 684 3,032 250 13J 33 21 10 

b ............ 871,266 30, 7ll 133,760 219,186 255,134 64,303 62 ,490 21 , 177 38,136 41,731 

c ............ 2,604 ,656 150,467 542,022 656,396 668,216 167 , 152 152,765 54,u33 97 ,644 98 .851 

d ............ 33.4 20. 4 24. 7 33.4 38.2 38.5 40.9 38.8 39.1 42.2 

Services 

11 •••••• • •• • •• 151,288 90 ,470 43,321 13,803 3 ,034 331 194 ~9 30 27 5 4 

b ............ 1,059 , 348 78 ,803 164 .799 214,528 177,509 81 , 642 81, 849 77,600 43, 842 61 , 430 15, 470 61, 876 c ............ 3,352 ,128 395,608 666,824 664,049 493,694 215 , 332 209 , 466 193,U4 132 , 563 179 , 077 54 ,903 147,487 

d ............ 31.6 19.9 24 . 7 32. 3 36 .0 37.9 39.1 40.2 33.1 34 . 3 28.2 42 .0 

Tt'ansponatio,, 

1) ............ 26,521 9, 864 10 ,518 4,630 1, 077 174 122 50 29 21 17 7 13 

b .. .. .. ...... 781 , 512 7, 360 38,693 78,065 91,698 49,223 76 ,922 54,164 49 ,S04 49,979 134,060 63,360 88 , 485 

c . ........... 2, 593,240 39,677 180,174 247 , 572 245,013 128 , 497 192 , 055 150,023 148,349 149,903 371,861 188 ,415 550,901 

d ............ 30.1 18.6 21.5 31.5 37.4 38.3 40.0 35. 9 33.4 33.3 36.0 33. 6 16.1 

a • Number; b -Worldwi de tax ~abilitie• net o f U. S. i nveaLment and WIN cred it ; c • Adj usted worldwide income; d - Effective tax rate. 

Office of the Secretary of the Treasury "' Ollice ol Tax Anll1ysu .... 
Table )a.-Effective Tax Rataa on U.S. So urce Income, All Corpo rations With lncome , by Industry and Size of Assets; 1972 

Assec Size ~dol.larsl 

1 50, 000 : 25o ,ooo : l , oOo,ooo= s , ooo, ooo:lo,ooo, ooo:25,oo:> .ooo: 5o,ooo,ooo: .~bill. :.25 bill. :.5 bill. l bill. Industry : All : under under : unde.r : under : under : under : under : under : under : under : under or !tell : s.izes :50,000 250,000 n, ooo ,ooo : 5,ooo,OOO:lo , ooo, ooo:25,ooo, ooo:5o,ooo,ooo;loo,ooo,ooo: .25 bill. : . 5 bill. : 1 bill. 110re 

Primary (dollar amounts in thousands) 

metals: 

nonfecrol!• 

a .... .. .. . . 1,243 177 442 283 238 43 22 7 15 6 - - 5 b . ......... 221,149 387 2,496 4. 574 33, 402 14,248 13 , 592 7,922 37,486 21,994 - - 17,932 c .......... 752,563 4,003 9, 057 16 , 284 80, 911 35,163 34' 835 19,ul0 113,431 69 , 869 - - 160, 048 

d .. ... ..... 29.4 9. 7 27.6 28.1 41.3 40.5 39.0 IC.4 33.0 31.5 - - 11.2 

Real estata o .......... 133,189 31 ,081 65. 29'2 29.714 6,218 499 257 82 26 17 

b ••••••••• • 695,230 19,663 136,041 195,139 169,307 40,094 48, 480 34,963 19 ,107 27,416 c ... ... .... 2,402 ,425 95,309 553, 351 689 , 793 518,543 137,291 156,492 103,653 51,681 81,442 

d .......... 28.9 20.6 24 . 6 28.3 32.6 29.2 31.0 33.7 37 . 0 33. 7 

Agdc~tur , 

forestry, 

and 

fisheries 

a .......... 18,421 5,324 7, 311 4, 756 906 74 37 8 - 4 b .......... 177,472 7, 145 21, 478 48, 623 47.798 15,693 13,196 7,993 - 10,184 c; •••••• •• •• 631,835 36,016 110,356 181,193 151,184 42 , 945 45, 603 22,,23 - 28,712 

d .......... 28.1 19. 8 19.5 26.8 31.6 36.5 28 . 9 35.0 - 35.5 

Unc:laseifiab1e 

businesses 

a .......... . 2,864 2,154 487 189 29 

b .......... 8,420 2,112 2,188 1, 933 l,Sll c .. ... ..... 30,368 7. 452 7, 765 8,637 3, 513 

d .. . .. ..... 27.7 28.3 28.2 22.4 43.6 

Hinina not 

elsewhere 

claeslfied 

a ....... .. . 1,862 - 752 679 248 47 21 11 

b .......... 61, 855 - 2, 622 9,899 15,268 11,233 6, 628 8,586 e .. .. ...... 241, 699 - 13, 778 42.058 57,260 41,269 25,104 33,276 

d ......... . 25 . 6 - 19 . 0 23.5 26.7 27.2 26.4 25 . 8 

a • Number; b • Wo rldwide tax liabilities net of U.S. investment and WIN credit; e • Adjusted worldwide income; d • Effective tax rate. 

Office of the Secretary of the Treasury 

"' Office of Tax Analysis ... 
Tabl~ 3o.-Effec:Live Tax Rat~• on U.S. Source Income, All Corporation• With loco~ . by lnduotry and Siz~ of Assets; 1972 

Asset Size (dof1ore) 

50,000: 250,Cf00 :1,000,000: 5 ,000,000:10,000,0oi0:25,00o, OOO: 50,000 ,000: .1 bill. :.25 bill. :. 5 bill.: 1 bill. 

under : under : under : under : und~r : under : under : under : under : under : under : or tndustry 

lt~ll 

All 

sizes 50.000: 250.000: 1.000.000 :5,000,()()()_:10,000 , 000:25, 000 , 00":50,000,000:100, 000,000: . 25 bill.: .5 bill. : l bill.: ..,re 

Petro1eU"II 

and 

nAtural 

gas 

4 •••••••.•• 

b ••.••••••• 

e ..... . .. . . 

d •••.•••••• 

Coal lllni.13 

•. ......... b •..••••••• 

c .......... 

d ... ...... . 

Bank.ing 

........... 

b ......... . 

c ..... 0 •••• 

d ......... . 

3,878 

714,643 

2 . 693,401 

24.7 

737 

35,739 

184 , 017 

19.4 

17,938 

1,413, 574 

7,6U,205 

18.6 

1,154 1,443 718 

1, 234 7,169 9, 406 

6. 460 32. 363 36 . 050 

19.1 22.2 26.1 

tn 248 196 

126 1,438 3,026 

577 5. 655 12,315 

u.s 25.4 24 .6 

- 384 823 

- 1,562 3, 282 

- 4,895 13,180 

- 31.9 24.9 

(dollar amounts in thousands) 

379 60 40 30 13 15 4 

31,026 11 , 956 U,069 ~9,609 ll, 826 25,727 55,172 

101.678 46.973 50 .104 89 . 239 53, 004 100,517 157,061 

30.5 25. 4 24.1 33.2 22 . 3 25.6 35.1 

70 19 10 10 

6,798 5,457 4, 410 4, 176 

24,831 19 , 83to 17,651 21,656 

27 . 4 27 .5 25.0 19.3 

5, 787 3, 774 3, 527 1,578 897 599 227 

76,063 100 , 676 157.735 133,2)8 134.803 217,336 181,236 

365,883 530,457 868,841 697 , 541 674,652 1,029 ,589 892 . 091 

20.8 1'1.0 18.2 1'1.1 20.0 21.1 20.3 

a • Number; ;, • Wor.lclwide tal< llebllities net of U.S. lnveetment and W1.N c:redit ; c: • Adjusted worldwide income; d • Effec:tive tax rate. 

Office o! the Secretary of the Treasury 

Office of Tax Analysis 

4 

20,957 

118,183 

17.7 

ll7 

147,283 

853,489 

17.3 

18 

498,491 

2, 101,769 

23.7 

72 

260.287 

1,685,280 

15. 4 

..,. 

... 
Appendix 

Industry Descriptions 

1 Agriculture, forestry, fisheries 

2 Banking 

Mutual savings banks 

Banks and trust companies 

Savings and loan associations 

3 Coal mining 

4 Communications 

5 Contract construction 

54 

6 Credit dealers, brokers, insurance agents 

Personal, business, and other credit agencies 

Securities brokers, dealers and flotation companies 

Commodity brokers and dealers, security and commodity exchange and allied services 

Insurance agents, brokers, and service 

Other real estate and combinations of real estate, 

insurance, loan, and law offices 

7 Electric, gas and sanitary services 

8 Lumber and wood products (nonfurniture) 

9 Manufacturing not elsewhere classified 

Apparel and textiles 

Chemicals and allied products 

Fabricated metal products 

Food and kindred 

Furniture and fixtures 

Leather and leather products 

Machinery 

Miscellaneous manufacturing products Printing and publishing 

Scientific instruments, photographic equipme~t, watches, clocks 

Stone, clay and glass products Tobacco 

Transportation equipment 

10 Other mining 

Miscellaneous metal mining 

Non metallic minerals (except fuels) mining 

11 Paper and allied products 
12 Petroleum and natural gas 

Crude petroleum a nd natural gas Petroleum refining and related industries 

13 Primary metals: ferrous 

Iron ore mining Ferrous metal processing and basic products, and 

primary metal products not elsewhere classified 

14 Primary metals: nonferrous 

Copper, lead and zinc, gold and silver ores 

Nonferrous metal processing and basic products 

55 

15 Real estate 

Except other real estate combinations of real estate, 

insurance, loan and law offices 

16 Services 

17 Transportation 

18 Unclassifiable business 

19 Wholesale and retail trade 
56 

Definitions of Te rms 

Adjusted a sse ts - Total a sse ts l e ss the sma lle r of "a ccoun t s 

payable" or "accounts receivabl e ". Accounts r e c e i va ble 

are trade notes and acounts receivable minus allowance 

for bad debts plus other current assets. Accounts 

payable are accounts payable plus mortage s due in l e ss 

than one year plus other current liabilities. 

Adjusted U.S. source income - See U.S. source adjusted income. 

Adjusted worldwide income - Basic worldwide taxable income 

plus charitable contribusions, tax e xempt interest, 

public utilities dividend paid deduction, Western 

Hemisphere Trade deduction, other preferences as defined 

in the minimum tax calculation, foreign taxes deemed 

paid and not elsewhere included in income, and the net 

operating loss deduction. 

Basic Worldwide Taxable Income - Net income as defined by the 

Internnl Revenue Code, i.e., gross income from all 

sources less all allowable deductions, including the 

so-called speical deductions for net operating loss 

carryforward, dividends received, and Western Hemisphere 

Trade. 

Deferred income taxes - When financial report income exceeds 

taxable income because certain deductions are taken for 

tax purposes prior to the time they will be recorded in 

the financial books-of-account, this is taken to mean 

that income tax on the diference between the two 

measures of income is "deferred." Deferred taxes are 

therefore estimates of the current ye ar's tax expense 

which will be paid in some future year. 

DISC corporations - Domestic International Sales Corporations 

established by The R~venue Act of 1971, Public Law 

92-178, are entitled to special tax treatment for 

taxable years beginning on or after January 1, 1972. 

The income of these corporations is untaxed and one half 

of such income is deemed to be distributed to the parent 

corporation and taxed at the parent corporation level. 
57 

Foreign source income - Reported Form 1118 source income plus 

the Western Hemisphere Trade Ded uctions plus foreign 

taxe s de emed paid and not e lsewhere included in income. 

Foreign tax credit carryforewa rd - A credit for taxes paid on 

foreign source income in excess of u.s. statutory rates 

in a previous year used to r educe current yea r u.s. tax 

payments. 

Foreign tax liabilitie s - Foreign taxes paid and deemed pa i d 

Investment tax credit - A tax credit equal to 7 percent in 

1972 of the purchase price of machinery and equipment 

with a useful life of 7 years or more. Th e credit for 

shorter-lived prope rty is reduced. The amount of the 

credit in any one year cannot exceed the first $25,000 

of tax liability for the year plus one-half the tax 

liability in excess of $25,000. 

Net operating loss carryforward - A taxable income deficit in 

pre vious yea rs deducted from current year income. 

Subchapter S corporations - Ce rtai n small corpora t i ons with 

fewer than 10 st ockholde rs and having one class of stock 

that are subject only to capital gains taxes on ce rtain 

transactions. Th e t axable income of such corporations 

is attributed and taxed to shareholders whethe r or not 

distributed. 

worldwide tax liabilities, net of U. S. investment a nd WIN 

credits - Net dome stic income and min1mum t a xes due plus 

foreign taxes paid and deemed paid plus foreign tax 

credits carried forward a nd t a ken plus tax on 

r e computa tion of the investment credit. 

U.S. tax liability after investment and WIN credit - Worldwide 

tax liabilities net of u.s. investment a nd WIN credits 

minus foreign t a x liabilities. 

u.s. source adjusted income - ~djusted worldwide income minus 

fore1gn source income . 

U.S. tax after credits - Total taxes paid. This is the net 

income and min1mum tax due and payable to the Treasury 

after foreign, investment and work incentive credits. 

WIN credit - A tax credit of 20 percent o f certain e xpenses 

incurred in the empo1yrnent o f welfare r e cipients. 

U. S. OOVEIINliiENT PRINTING OFFICE: 1911 0 • 284-U8 
Department of the Treasury 

Washington, D.C. 20220 

Offtctal Buseness 

Penalty for Private Vie, $300 

Ponage and Fees Paid 

Department of the Treasury TREAS-551 [!] l~~