EPI Perpetuates Myth of Low Corporate Taxes
October 9, 2014
The problem is the corporate profits data to which he refers includes millions of businesses that are not subject to the corporate tax, namely S corporations that are taxed under the individual tax code instead.
See the BEA definition of corporate profits here. This is not a minor mistake. S corporation profits are almost as large as C corporation profits, but, again, only C corporations are subject to the corporate tax. See the chart below. It just makes no sense to compare C corporation taxes with C plus S corporation profits.
The second chart reveals the real reason why corporate tax revenue has fallen as a share of GDP over the last few decades: corporate profits have fallen, i.e. profits of C corporations to which the corporate tax applies. The U.S. corporate tax regime itself has remained essentially the same since 1986, but C corporations have fled the tax code at the rate of about 50,000 a year. Some of them reformed as S corporations, or other pass-through businesses taxed under the individual code. Some of them inverted to lower tax countries. Others simply went out of business and never came back, and the new entrepreneurs steered clear of America’s overly burdensome corporate sector.
America’s extremely uncompetitive corporate tax hobbles American corporations, and corporations perform economic functions that cannot be done by smaller businesses, such as build airplanes. That means jobs are lost and wage growth stagnates. Obscuring these facts is unfair to American workers.
Follow William McBride on Twitter
Was this page helpful to you?
The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?Contribute to the Tax Foundation
Let us know how we can better serve you!
We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better?Give Us Feedback