Question

SO, the average tax rate paid by most corporation is 18%, despite the high rate of 39%. The reason for that is the high level of deductions. So my question becomes should we compare the nominal or effective tax rate in foreign countries versus the US local tax rates?

Answer 1

we have to consider effective tax rate for mking a comparision of two or more forign countries with the US.

nominal tax rate (marginal tax rate) is the tax rate that an individual would pay on one additional dollar of income.the margial tax rate is the tax percentage of the last dollar earned.the nominal tax rates are divided into different tax brackets depending on the different income,th higher the income the higher the tax brackets it varies from 10% to39.6% as per U.S tax laws.they are only applied to our taxable incomes taking into considerations various eemptions and deductions.

On the other hand, effective tax rate is the total amount of income tax you pay as a percentage of your total income.it is the amount you are actually paying.for example,if i earned a total of $20000 last year and paid $2000 in federal income tax ,then my effective income tax will be 10% even if my nominal rate is much higher.

so while comparing 2 countries we always consider the effective tax rate as it ia an overall summary of the overall taxation principles of a country and it is important for any comparison.