Corporations are beggaring the U.S. Treasury

The historic decline in corporate taxation is a major reason we don't have enough tax revenue to meet the country's needs.

This is my new favorite chart. It’s from a 2020 report by Harvard economist Jason Furman. It shows the decline in corporate income-tax revenue as a share of GDP since 1930. Please observe that it was way down even before President Donald Trump slashed the top corporate income-tax rate from 35 percent to 21 percent in 2017. This decline is a major reason the Treasury is starved for cash. In 2018, tax revenue—all revenue, not just corporate revenue—was, omitting cyclical downturns, at a 50-year low relative to GDP. And that was before Congress spent $4 trillion on Covid relief.

A big reason for the decline is the rise of international profit-shifting to foreign tax havens that accompanied the globalization boom in the 1990s. As recently as the late 1970s, Emmanuel Saez and Gabriel Zucman report in their 2019 book, The Triumph of Injustice, U.S. corporations made less than 15 percent of their profits abroad, and when corporate profits were assigned to foreign countries these were almost always countries that taxed corporate profits pretty much the way we did. (The top U.S. corporate income-tax rate in those days approached 50 percent.) Booking profits in tax havens like the Cayman Islands was mostly thought not worth the bad publicity it would generate. But as globalization expanded the profits these companies earned abroad, they got a lot less inhibited about tax havens. In the late 1970s, only about 5 percent of profits booked abroad were attributed to tax havens. Today that’s more like 60 percent. Pass me another rum punch, baby!

Treasury Secretary Janet Yellen is trying to do something about this. The OECD is proposing a 15 percent global minimum corporate income tax, and the Biden administration has endorsed it. So has the G-7. So have 130 countries—including the Cayman Islands! You know who won’t endorse it? Senate Republicans. “I certainly hope that the deal does not get implemented by the U.S.,” Mike Crapo, ranking member of the Senate Finance Committee, told Bloomberg this week. “That would be a terrible mistake.” Crapo’s position appears to be that it’s un-American for U.S. corporations to pay taxes in the U.S.

Meanwhile, Senator Rick Scott, chairman of the National Republican Senatorial Committee, is pushing a minimum income tax for poor people so they’re made to feel they have “skin in the game.” Neither Rick Scott’s cleaning lady (I assume he’s got one) nor FedEx paid income taxes last year. Scott doesn’t give a crap about FedEx, but he wants his cleaning lady to pay up. Morally, this is deranged. And from a budgetary standpoint, it wouldn’t even raise that much revenue—probably less than $100 billion—compared to restoring corporate taxation to something resembling its historic level. This is the subject of my latest piece for the New Republic. You can read it here.

Earlier this week, I explained how the nation’s CEOs are getting rich off inflation. You can read that piece here.