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BEA: Corporate Income Tax Collections in 2007 Grew at Slowest Pace in Five Years

By: Gerald Prante

This morning, the Bureau of Economic Analysis (BEA) reported finalized GDP numbers for the fourth quarter of GDP, as well as figures for corporate profits and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es paid for calendar year 2007. They show corporate income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es growing at only a 2.1 percent pace in 2007, which is down by a lot compared to growth in 2006, which was 15.7 percent and 2005 when growth was 28.4 percent. The Congressional Budget Office is actually forecasting a decline (not just slower growth) in corporate income tax collections for this fiscal year.

As a general rule, corporate income tax collections are much more volatile from year-to-year than other taxes, especially sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es and taxes on wages and salaries. Therefore, one downside to raising taxes on corporations, although the tax is often politically easy and a necessary backstop for the income tax system that we have, is that the revenue source is much more susceptible to large swings from year-to-year.