From the Archives: Tax Foundation Corporate Tax Burden Studies from the 1980s
July 25, 2011
A common theme that has been increasingly salient in American political circles is the issue of the effective corporate income tax rate in the United States. Within that discussion, we at the Tax Foundation argue that the effective corporate income tax rate is too high in the United States and makes our businesses less competitive vis-a-vis foreign companies. As a previous Tax Foundation blog post emphasizes, even former President Bill Clinton agrees with our assessment of the American corporate income tax rate.
A two-part series of Tax Foundation Working Papers published in 1985 and 1986 called “Business Tax Burdens” focuses on the unseen burdens that American firms faced in the 1980s, and even sheds some light on what firms must contend with today.
The two papers in the series titled “VAT After All?” and “Business Tax Burdens II” cover several aspects of corporate taxation and find that though different congressional studies conclude that firms are able to “loophole” their way out of paying federal and state corporate income taxes, in reality most firms still have to bite the tax bullet, as it were. These briefs advance that government (and other) arguments about corporate loopholes usually do not take into account all of the taxes that companies pay, but simply focus on specific tax breaks, exemptions and the narrow range of companies that receive them.
Specifically, the briefs’ findings suggest that firms must deal with not only the federal corporate income tax, but also the state income taxes, which are a significant burden. What’s more, corporations also have to contend with the payroll tax which is “[t]he largest element of the business tax burden,” but is simply “the cost of doing business and, particularly in labor-intensive industries, constitute[s] a very large burden” (p. 5 of 1985 study). Ultimately, the paper finds “[it] apparent that the overall business tax burden is large and growing…[and] shows no sign of fading away…”(p. 5 of 1985 study).
This post is part of a series highlighting Tax Foundation research from the past. Please keep in mind that government data used in these studies may have since been revised and should not be cited.
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