Big Companies’ Share of Federal Taxes May Be Less, Post-Reform

By Jonathan Nicholson

The share of federal tax revenues provided by major U.S. businesses—already slated to be in the single digits as a percentage of overall government revenues in coming years—would fall even further under a 15 percent tax rate, according to analysts.

The decrease would raise questions about the distribution of the tax burden: Economists view corporate taxes as mostly paid by holders of capital, including company shareholders, as opposed to providers of labor.

“At the end of the day, the government is going to need to bring in money. With growing inequality, that money should be raised in ways that are progressive,” said Hunter Blair, budget analyst with the liberal Economic Policy Institute.

Recent Low in 2009

According to data from the nonpartisan Congressional Budget Office, the percentage of overall federal revenues from corporate taxes has been steadily falling since the 1960s, when it was over 20 percent of receipts.

But in 2016, it fell to 9.2 percent and in 2009, at the end of the end of the 2007-2009 recession, it hit 6.6 percent, the lowest proportion of federal revenues from corporate taxes since 1983, when the level was 6.2 percent.

While corporate revenues have rebounded since the recession, the CBO baseline shows them still in the single digits and slowly drifting lower through 2027, when the CBO projects they’ll fall to 8.6 percent.

Part of the decline can be explained by the shifting makeup of U.S. companies. The business taxes the government tracks in its figures are for C corporations, which are large publicly traded companies. Other types of business entities, such as partnerships or limited liability companies, are taxed at personal income tax rates instead of the statutory 35 percent rate for C corporations.

That 35 percent rate would drop, though, under tax overhaul outlines put forward by House Republicans and President Donald Trump. Trump would take the rate down to 15 percent but wipe out the plethora of targeted tax breaks companies commonly use to avoid paying the full current 35 percent rate.

Role as Backstop

That would drive corporate revenue even lower, according to Joe Rosenberg, senior research associate with the centrist Tax Policy Center. Rosenberg said in an email that the TPC had estimated the Trump plan would cut corporate revenues by about $2.3 trillion over 10 years, equivalent to cutting them by 60 percent compared to the CBO baseline.

“So that certainly would be very low historically,” he wrote. The EPI’s Blair agreed, saying, “You would lose revenue from the corporate income tax” under the 15 percent rate compared to the current one.

Rosenberg said the corporate tax system also serves in a role as a backstop to the individual income tax system. “With a low (or zero) corporate tax rate, individuals could use corporations as tax shelters to defer or avoid altogether paying tax on their income,” he wrote.

Revenue Neutrality Needed

Steve Ellis, vice president of Taxpayers for Common Sense, said a tax overhaul is needed, but it should be revenue-neutral “at worst.”

“I would note that corporations have to pay their fair share of taxes, so its declining share of the revenue make-up can be cause for a concern,” he said in an email. “Rate reductions have to be achieved by eliminating breaks and special interest giveaways, not rosy growth scenarios.”

“We have a voluntary compliance tax system,” Ellis said. “The public has to have faith that everyone, including corporations, are paying their fair share. Reforming the tax code to be flatter, fairer, and simpler can go a long way to assure taxpayers that they system isn’t rigged against them,” he wrote.

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