Understanding US Corporate Tax Rate History and Its Impact

The US corporate tax rate has undergone significant changes over the years, with the highest rate reaching 52.8% in 1968. This was during the height of the Vietnam War and a period of high inflation.

Prior to 1968, the corporate tax rate had been steadily increasing since the 1940s, with the rate more than doubling from 25% in 1941 to 52.8% in 1968. The tax rate remained high throughout the 1970s.

In the 1980s, the corporate tax rate began to decline, reaching a low of 34% in 1988. This was a result of tax reform efforts led by President Ronald Reagan.

The corporate tax rate has a significant history in the United States. The statutory corporate tax rate was over 50 percent between 1950 and 1960.

During this period, the economy grew at an annual average rate of 3.9 percent. This is a notable fact, as it suggests a positive association between GDP growth and corporate tax rates.

The statutory corporate tax rate leveled at about 52 to 53 percent through most of the 1950s and 1960s. This consistency is worth noting, as it may have contributed to the economic growth of the time.

Between 2000 and 2010, the statutory corporate tax rate was 35 percent, which is over 15 percentage points lower than the rate in the 1950s. As a result, annual economic growth averaged 1.8 percent, which is less than half of the growth rate in the 1950s.

The trend in real GDP growth since 1947 has basically fluctuated around a downward trend. This is evident in Figure B, which displays the real GDP growth in a dotted line.

Tax evasion and abuse have been major issues throughout the history of the US corporate tax rate. In 1924, the tax rate on corporate profits was reduced from 65% to 50%, which led to an increase in tax evasion.

This reduction in tax rate created an opportunity for companies to exploit loopholes and underreport their income, resulting in billions of dollars in lost revenue.

The 1954 Internal Revenue Code introduced a new tax system that allowed companies to deduct losses from previous years, which was later found to be abused by companies like General Motors and Chrysler, who used this loophole to avoid paying taxes.

The Tax Reform Act of 1986 attempted to curb tax evasion and abuse by introducing a new tax system with a lower corporate tax rate of 34%. This rate was intended to be more difficult to evade, but companies like Apple and Google were still able to use loopholes to minimize their tax liability.

The federal government collects a significant amount of revenue from corporate income taxes, but it's a relatively small share of total tax collections. In 2023, the federal government is projected to collect $475 billion from corporate income taxes, just 10 percent of the total $4.8 trillion in federal tax revenues that year.

Corporate income tax revenues have declined as a share of GDP over the years, from an average of 4.2 percent in the 1950s and 1960s to just 1.7 percent in 2022. This is one of the lowest percentages among G7 countries, who on average collect 2.3 percent of GDP from corporate income taxes.

Tax expenditures, such as exclusions, exemptions, deductions, and credits, reduce total tax liability and contribute to the relatively low percentage of corporate income tax revenues. In 2022, tax expenditures reduced total federal corporate income tax revenues by over $100 billion, and in 2023, the United States will forgo $161 billion in revenues due to corporate tax expenditures.

The federal government collects a significant amount of revenue from corporate income taxes, but it's a relatively small share of total tax collections. In 2023, the federal government is projected to collect $475 billion from corporate income taxes.

Corporate income taxes are the third-largest source of revenues for the federal government, but their share of total tax collections is small at just 10 percent. In 2023, the federal government is projected to collect $475 billion from corporate income taxes, which is a fraction of the total $4.8 trillion in federal tax revenues that year.

The share of corporate income tax revenues as a percentage of the economy in the United States is one of the lowest among G7 countries, who on average collect 2.3 percent of GDP from that source. In 2022, corporate tax revenues represented just 1.7 percent of GDP, a significant decline from the 4.2 percent average in the 1950s and 1960s.

Tax expenditures, which include exclusions, exemptions, deductions, and credits, reduce total tax liability and lower corporate tax revenues. In 2022, these tax expenditures collectively reduced total federal corporate income tax revenues by over $100 billion.

About half of all large corporations had no federal income tax liability each year from 2014 to 2018. This is according to a report by the Government Accountability Office (GAO).

A large corporation is defined as one that filed IRS Schedule M-3, which is required for corporations with $10 million or more in assets.

Among profitable large corporations, on average, 25 percent had no tax liability. This is a significant number, and it highlights the complexity of corporate tax laws.

Corporations may have no federal income tax liability for a number of reasons, including not being profitable in a given year or having losses or credits from other years that can be used to offset current-year tax liabilities.

In fact, among large corporations, from 2014 through 2018, an average of approximately 44 percent reported a loss in a given year. This suggests that many corporations are not consistently profitable.

Effective tax rates measure tax liability as a proportion of income and are typically lower than the statutory tax rate because they reflect deferrals, credits, and other tax benefits.

Among profitable large corporations, average effective tax rates varied between 2014 and 2018, ranging from 16 percent in 2014 to 9 percent in 2018.

The US corporate tax rate has a complex history. The statutory rate averaged over 50 percent in the 1950s and 1960s.

In 2017, a tax law lowered the top corporate rate from 35 to 21 percent. This change affected effective tax rates in more complicated ways.

Half of large corporations and a quarter of profitable ones didn't owe federal taxes from 2014-2018. This is due in part to prior years' losses and tax breaks.

Average effective tax rates among profitable large corporations fell from 16% in 2014 to 9% in 2018. This means corporations paid significantly less in taxes over this period.

The federal government collects $475 billion from corporate income tax in 2023, just 10 percent of total federal tax collections. This is a relatively small amount compared to the total.

Corporate tax revenues as a percentage of GDP are one of the lowest among G7 countries. The US collects 1.7 percent of GDP from corporate taxes, compared to an average of 2.3 percent among G7 countries.

Here's a breakdown of the share of corporate income tax revenues as a percentage of GDP in the US and G7 countries:

Tax expenditures, such as exclusions, exemptions, deductions, and credits, reduce total tax liability. In 2022, these expenditures collectively reduced total federal corporate income tax revenues by over $100 billion.

The corporate income tax serves several important functions, including raising revenue for the federal government. In fiscal 2012, the corporate income tax generated $242.3 billion, accounting for almost 10 percent of total federal revenues.

The tax also contributes to the overall progressivity of the tax system by placing a burden on capital. This is because most of the corporate tax burden falls on capital, not labor, with estimates suggesting that between 75 and 82 percent of the burden falls on capital.

We need a corporate income tax to raise revenue for the federal government. In fiscal 2012, the corporate income tax brought in $242.3 billion, or almost 10 percent of total federal revenues.

The corporate income tax is less important now than in the 1950s, when it accounted for about 30 percent of total revenues. This shift is a reflection of the changing economy.

A corporate income tax serves as a backstop to the individual income tax. It prevents high-income taxpayers from using corporations as tax shelters.

The U.S. statutory corporate income-tax rate is one of the highest in the industrialized world, standing at 35 percent since 1993. However, the effective tax rate is about the same as in other OECD countries.

The corporate tax burden falls on capital, contributing to the overall progressivity of the tax system. Many tax policy analysts and government agencies agree that between 75 percent and 82 percent of the corporate tax burden is distributed to capital.

Many people believe that tax policy is solely about raising revenue, but that's a narrow view.

The truth is, tax policy has a profound impact on the economy and the lives of individuals and businesses.

In fact, the 2018 Tax Cuts and Jobs Act reduced the corporate tax rate from 35% to 21%, resulting in a significant increase in corporate profits.

Tax policy can also influence economic growth by affecting the incentives for investment, savings, and work.

Research has shown that lower tax rates can lead to increased economic activity, as individuals and businesses are more likely to invest and take risks when they keep more of their earnings.