Congress Sees Corporate Income Tax Receipts Dropping

The amount of money the federal government receives from corporate income taxes has been declining since 2008, mainly because of the recession, according to a new government report.

The Congressional Budget Office reported last Thursday that since 2008, receipts from corporate income taxes have been smaller, relative to the size of the economy, than their historical average of 1.9 percent of gross domestic product, largely because the recent recession substantially reduced taxable corporate profits.

In the report, the CBO noted that temporary provisions in tax laws also played a role, particularly provisions that allowed firms to accelerate deductions for investments they made in certain equipment between 2008 and 2013. The CBO projects that corporate income tax receipts will rise as a percentage of GDP in the next few years—to levels above the historical average—as the economy continues to recover and those temporary provisions expire.

“After 2016, however, receipts are projected to decline as a percentage of GDP—dropping back near their historical average by 2023—as profits fall relative to GDP,” wrote Pamela Greene, an analyst in the CBO’s Tax Analysis Division. “The relative decline in profits is expected to stem from increases in corporations’ interest payments, growth in the share of national income going to workers, and increased deductions for investments as the stock of business capital rises due to the economic recovery.”

A spate of recent reports have examined the controversial subject of how much corporations pay in income taxes, with widely varying findings. The Government Accountability Office released a report in July that found corporations paid only about 13 percent of their pretax worldwide income in U.S. federal income taxes (see Profitable Corporations Pay Far Less than Their Statutory Tax Rates). However, a more recent study by Andrew Lyon of PricewaterhouseCoopers that appeared in Tax Notes faulted the GAO report's methodology and pointed out that the GAO only examined one year of data, from 2010, in the aftermath of the recession. However, the PwC study also indirectly confirmed the finding of low effective tax rates for corporations, according to an analysis by the advocacy group Citizens for Tax Justice. Meanwhile, an analysis by USA Today last week of the companies listed in the S&P 500 found that one out of nine paid an effective tax rate of zero percent.

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