Understanding the Factors behind the Relative Decline of the U.S. Corporate Income Tax

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Abstract

From 1950 to 2010, total federal tax collections declined only slightly relative to GDP, from 17.4% to 16.0%. However, Federal business income tax collections, which are comprised primarily of corporate income taxes, fell by over half, from 4.2% of GDP and 24.2% of total Federal tax collections to 1.9% of GDP and 11.9% of total Federal tax collections. We seek to better understand what changes in laws or economic conditions or business practices underlie the relative decline of U.S. corporate taxes. Factors we consider include: legislated changes in tax rates; changes in profitability; increased usage of pass-through entities for business tax filings; increased shifting of income overseas; the increasing size of other intended federal “tax expenditures; changes in the level of tax shelter activity; and relative increases in other forms of Federal taxation, such as Social Security and Medicare taxes.

Authors

• Daniel Tinkelman, Hofstra University

• Elizabeth K Venuti, Hofstra University

• Steve Petra, Hofstra University