Why Have Corporate Tax Revenues Declined? Another Look

As a share of GDP, U.S. federal tax revenues from nonfinancial corporations have held relatively constant since the early 1980s, after falling precipitously during the late 1960s and the 1970s. But this relative constancy masks offsetting trends in the ratio of nonfinancial C corporation profits to GDP (declining) and the average tax rate on these profits (increasing). The average tax rate rose steadily between 1996 and 2003, an increase largely attributable to an unprecedented rise in the importance of tax losses. This rise casts some doubt on the importance of tax planning activities as a vehicle for reducing corporate taxes. So, too, does the relative stability of the rate of profit (relative to net assets), which might be expected to have declined had the understatement of profits for tax purposes been increasing.

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