Green Party On "Great Corporate Tax Shift"

The mantra of the Republican Party is that corporations are taxed too heavily, and that reducing corporate taxes would be good for all Americans. Neither of those statements is even remotely true. Since the 1980's, the GOP has systematically reduced corporate taxes (through a variety of measures) and shifted that tax burden onto ordinary Americans. Currently, corporations pay less taxes than at any time since World War II -- both in terms of their effective tax rate, and as a percentage of the federal revenue.

The Green Party calls this "the great corporate tax shift", and Jack Rasmus (Green Party Shadow Cabinet member) has written a superb article about this shifting of taxes away from corporations. I am posting some of that article below, but there is much more and it is well worth reading it all (and I urge you to do so). He even offers some proposals to reverse the decline in corporate taxation. Mr. Rasmus writes:

For more than three decades now, what might be called the ‘Great American Tax Shift’ has been gaining momentum.  Wealthy investor households—the ‘high net worth’ and ‘very high net worth’ household investors with annual incomes of more than $5 million and $20 million respectively—have been paying less and less in taxes relative to the accelerating growth of their incomes while the more than 100 million wage earning households in the U.S. have been called on to shoulder an ever-growing relative tax burden at both the federal and state & local levels.  

Within this primary tax shift trend are several additional sub-trends that are responsible for the general tax shift—central among which is the trend of the decline in the Corporate Income Tax.  

By various measures, the Corporate Income Tax has been declining: as a share of total federal tax revenues, share of state revenues, as a share of total corporate profits, and as a share of US gross domestic product and national income.

Corporate Taxes As Share of Total Federal Revenues

                    Year    Revenue Share

                    1954        32%

                    1964        21%

                    1986        12.2%

                    2009        6.5%

                    2010        8.8%

                    2011        7.8%

                    2012        9.8%

From the preceding table it is apparent there is both a long run decline in the share of total federal revenue derived from the Corporate Income Tax, as well as a shorter run trend of a precipitous fall, 2009-2012, in corporate tax revenues occurring during the so-called recovery period from the 2007-09 recession.

Declining Corporate Tax vs. Rising Profit Levels

Moreover, the average annual corporate tax rate of 8.2% during the last four years, 2009-2012, has been taking place as corporate profits have risen to historic record levels. Profits today, in 2013, exceed even the record levels attained in 2007 at the peak of the housing-finance bubble before the 2008 crash.  

U.S. Corporate Pre-Tax Profits

                    1980        $223 billion

                    1993        $505

                    2001        $690

                    2007        $1,748

                    2008        $1,382

                    2009        $1,468

                    2010        $1,834

                    2011        $1,847

                    2012        $2,190

As the preceding table shows, corporate profits more than doubled during the first seven years of the George W. Bush regime. Those profits took a hit during the recession of 2008-09, but recovered rapidly—exceeding the previous highs of 2007 by 2010, only a year after the end of the recession in 2009.  But despite the rapid recovery of profits, corporate tax revenues as a share of total revenues remained near recession lows. Ordinarily, corporate tax revenues should rise as corporate profits accelerate. But this has not happened since 2009.  The decline in US corporate tax revenues has occurred in spite of the record surge in corporate profits since 2009.  The result was an even more dramatic surge in corporate after-tax profits in the U.S. since 2009—accelerating at a rate during the Obama administration as rapidly as the rate under the George W. Bush administration. The recession of 2008-09 was thus a mere blip on the accelerating upward climb of corporate profits in the U.S.

The following graph illustrates that record surge in after-tax corporate profits since the late 1980s. That surge is the result of a major decline in the effective (i.e. actual taxes paid) corporate tax rate since the 1980s, in contrast to the official corporate tax rate of 35% that hasn’t changed much in more than two decades.

The following table shows that the accelerating growth of corporate after-tax profits has mostly occurred since 1986—when the last major tax code overhaul occurred—and especially since the 1990s.  That is also just about when the corporate effective tax rate begins to diverge sharply from the official corporate tax rate.

Effective vs. Official Corporate Tax Rates

                   Effective Tax Rate    Official Tax Rate

            1990        33%            34%

            1995        31%            35%

            2001        29%            35%

            2005        25%            35%

            2009        19%            35%

            2010        12.6%            35%

            2011        12.1%            35%

At about one-third the official tax rate now for the past four years, the sharp decline in the effective corporate tax rate is the result of numerous changes in the corporate tax since the mid-1980s. A short list of these include:

• Changes in 1995-96 that allowed multinational corporations to pay almost no taxes to the US, by moving offshore profits around amongst company subsidiaries and to different countries with lower taxes
• The acceleration of depreciation write offs for new equipment that expanded greatly after 2001 and again after 2008
• Changes that allowed select industries and companies to tax profits as personal income at the capital gains rate or as ‘carried interest’
• Changes that allowed widespread ‘deferred tax agreements’ (DTAs) and averaging of corporate taxes up to five years to reclaim back taxes paid or future taxes to be paid
• Rules permitting corporations to deduct interest payments
• Rules allowing companies to become real estate trusts and pay no taxes
• Scores of industry-specific rules resulting in special tax exemptions and credits