Six Charts That Show Why Corporate Tax Revenues are Low in the U.S. Right Now
Compared to historical trends and other advanced economies, corporate tax revenues in the United States are low. With the national debt rising unsustainably, increasing corporate tax revenue is one way to reduce the structural imbalance between spending and revenues. Below are charts that illustrate key trends and insights about the U.S. corporate income tax system, examining reasons for the downward trend in revenue generation.
1. The U.S. corporate tax rate is in line with the average statutory tax rates of other wealthy countries. The federal statutory tax rate on corporate income is currently 21 percent. That does not include corporate income taxes levied by state and local governments. The 21 percent statutory corporate income tax rate in the United States is equal to the average statutory rate of 13 similarly wealthy countries in the Organisation for Economic Co-operation and Development.
However, the effective tax rate provides a more complete picture of the U.S. tax burden on corporations. The U.S. tax code has many preferences that affect the rate actually paid by corporations. The effective tax rate, which takes into account those tax provisions, often differs significantly from the statutory rate imposed by law. For example, the average effective tax rate of the 617 firms that paid more than $100 million in tax after credits in tax year 2022 was just 16.0 percent.
2. The United States collects fewer revenues from corporations, relative to the size of the economy, than most similarly wealthy countries. In 2022, the latest year for which data is available for international comparison, U.S. corporate tax revenues accounted for just 1.3 percent of gross domestic product (GDP).
3. After reaching its peak in the late 1960s, the statutory rate of the U.S. federal corporate tax has been on a decline. The current tax rate for corporations is less than half the size it was in the 1950s and 60s.
4. Not all businesses are taxed as corporations. Some businesses, known as pass-through entities, allocate profits to their owners who then pay individual income taxes on those profits. Pass-through entities have accounted for an increasing share of net business income over the past few decades. As a greater share of business income is taxed through the individual income tax, a smaller share is taxed through the corporate income tax.
5. Revenues from corporate taxes have generally been declining as a share of GDP, in part as a result of lower tax rates and the increase in the prevalence of pass-through businesses.
6. The United States forfeited about $188 billion of revenues in 2024 as a result of tax expenditures, or special tax code provisions, for corporations. Those tax expenditures include reduced tax rates for income from a corporation’s foreign subsidiaries, as well as the tax deduction for pass-through entities mentioned above.
Conclusion
The current tax code raises low levels of federal revenues from corporate income taxes, thus contributing to the growing national debt. However, the good news is that there are many policy options for lawmakers to reform the U.S. tax code in a way that supports economic growth and makes the nation’s fiscal outlook more sustainable.
Image credit: Photo by Izzet Keribar/Getty Images
Further Reading
The U.S. Corporate Tax System Explained
Revenues raised by the corporate income tax represent the third-largest category of federal revenues in the United States.
Quiz: How Much Do You Know About the U.S. Tax System?
The lengthy and complex United States tax code can be difficult to understand. Take our quiz to see how much you really know.
Infographic: How the U.S. Tax System Works
One issue that most lawmakers and voters agree on is that our tax system needs reform.