Businesses have what is called permanent and temporary differences. Some things can be deducted from business income on the books that cant be deducted for tax purposes, and vice versa. For example, a company can say on their income statements (called “the books”) that they have a net income of 25 million. They came to this conclusion by doing all the things u see on an income statement: getting their revenue from business and such and subtracting their expenses (obviously not the only thing but u get the gist).

Now, the government is NOT taxing these companies based on that book income figure. This is where permanent and temporary differences come in. The government uses tax law to encourage certain business actions, and discourage others. A very good example is that on the books, a company claims expenses for penalties and fines. They do this because the books are meant to be looked at by investors and they want to know every detail of the business so they can determine if they want to invest. The us government on the other hand doesnt care about investing, they just want the tax dollars. Because penalties and fines are punishments in the first place, the government does not allow a business to claim that expense as a deduction to their income.

So im going to make the fine a big number so u understand what im saying and see why their tax rate is lower. On the books, company has 30 million in revenue, and they have 5 million in operating expenses and 5 million in penalties and fines (not usual but just for example sake). For book purposes, u as an investor would see the company has a net income of 20 million (30 rev - 5 operating expenses - 5 penalties). The government says, nah, u cant be rewarded a 5 million deduction for being a bad company. So on ur tax return, they take ur nice 20 million dollar net income and plop on 5 million dollars. Now ur paying taxes on 25 million instead of 20 million. Books will say tho ur income tax expense is 20 million times whatever tax rate, but ur tax return will say ur income tax liability is 25 million times the rate. They then take the tax liability produced by that 25 million, and compare it to the 20 million in net income. Now the rate changed because the numerator of the equation (tax liability) is based on 25 million now instead of 20 mil. So the rate goes up.

Just curious but isnt a vegan to a vegetarian the same as a square to a rectangle? Not to be nitpicky but technically wouldn’t the vegetarian trend line always be equal to or above the vegan one?

Yeah and this isnt even a case of correlation with no causation, its just no correlation with no causation