April 1, 2020

Six Charts That Show How Low Corporate Tax Revenues Are in the United States Right Now

Compared to historical trends and other advanced economies, corporate tax revenues in the United States are at very low levels. As the 2020 presidential election nears, several current and former candidates have proposed changes to the U.S. tax system, including some that address how corporations are taxed. Below are charts that focus specifically on our current corporate income tax system, examining and illustrating reasons for the downward trend.

  1. Since the Tax Cuts and Jobs Act (TCJA) was enacted in December 2017, the U.S. corporate tax rate is no longer the highest among the G7. The current statutory rate of 26 percent includes the federal tax on corporate income (21 percent) as well as the average of corporate taxes imposed at the state and local levels. However, 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, profitable Fortune 500 companies paid an average effective federal tax rate of 11.3 percent in 2018.
  2. The combined federal and average state corporate tax rate in the United States is in Ii ne with those of other G 7 countries

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  3. The United States collects fewer revenues from corporations, relative to the size of the economy, than most other advanced countries. In 2018, the latest year for which data is available for international comparison, U.S. corporate tax revenues accounted for only about 1.1 percent of gross domestic product (GDP).
  4. As a share of GDP, U.S. corporate income tax revenue is the lowest among G7 countries

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  5. 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 those years.
  6. The statutory rate for federal corporate taxes has declined over time

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  7. Not all businesses are taxed as corporations. Some businesses, known as pass-through entities, allocate profits to their owners who then pay taxes on those profits through the individual income tax code. In addition, since the enactment of the TCJA, eligible business owners qualify for a tax deduction of up to 20 percent of their qualified business income. Pass-through entities have accounted for an increasing share of net business income over the past few decades.
  8. The share of net business income represented by pass­through entities has been rising since 1980

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  9. 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.
  10. Revenues from corporate income taxes have largely decreased since the 1950s

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  11. The United States forgoes nearly as much of its revenues as a result of tax expenditures, or special tax code provisions, for corporations as it collects in taxes from that source. 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. In fiscal year 2020, corporate tax expenditures are projected to equal over 90 percent of corporate tax revenues.
  12. In FY 2020, the amount the United States spends on corporate income tax expenditures will be over 90 percent of its revenues from that source

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Conclusion

The current tax code raises low levels of federal revenues from corporate income taxes, thus contributing to the growing national debt. However, there are opportunities for tax reforms that can help make our nation’s fiscal outlook more sustainable.


Related: Two Years Later, What Are Economists Saying About the Tax Cuts and Jobs Act?


Image credit: Photo by Izzet Keribar / Getty Images

 

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