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1 1 (April 14, 2021)

handle is hein.crs/goveczn0001 and id is 1 raw text is: $ I R~s~r~h $e ~rvic~ ~ ~. I ti 1~ ~ 9 April 14, 2021 Trends and Proposals for Corporate Tax Revenue Since the mid-1960s, U.S. corporate taxrevenues have declined, relative to the size of the economy. Corporate tax revenue as a percentage of gross domestic product (GDP), which was 3.9% in 1965, has fallen to approximately 1.0% in 2020. The decline in corporate taxrevenue since 1965 is due to several factors. Averagetaxrates have declined, primarily due to reductions in the statutory rate and changes in depreciation. The corporate taxbasehas also been reduced through declining profitability (return on assets), increaseduse ofthe pass-through organizational formfor businesses, and internationalprofit shifting. While U.S. corporate taxrevenue has decreased, corporate taxrevenue in other Organisation for Economic Co- operation and Development (OECD) member countries has, on average, increased. Since 1965, average corporate tax revenue collectedby OECD countries has increased from 2.1% of GDP to 3.1% of GDP in 2018 (see Figure 1). OECD data indicate that U.S. corporate taxrevenue (including corporate taxrevenue collected by state andlocal governments) fell from 3.9% to 1.0% during the same time. Figure 1. Corporate Tax Revenue, as a Percentage of GDP, 1965-2018 4.5 35 2s 0.5 0 United States namOECD Average Source: OECD Tax on Corporate Profits, https://data.oecd.org/tax/ tax-on-corporate-profits.htm, downloaded March 31,2021. Note: Tax on corporate profits includestaxes levied byall levels of govern ment. Figure 1 also shows that the United States collected 1.8 times as much corporate taxrevenue comparedto the OECD average in 1965. Since 1981, however, U.S. corporate taxrevenue as a percentage ofGDP has beenles s than the OECD average (which includes the United States). In 2018, OECD average corporate taxrevenue as a percentage of GDP was 3.1 times U.S. corporate tax revenue as a percentage of GDP. Corporate Tax Proposals President Biden's Made in America taxplan framework seeks to increase the amountofrevenueraisedby the corporatetaxsystem. Severallegislative proposals in the 117th Congress would affect corporate taxes. A number of proposals would likely increase corporate taxrevenues, in most cases by altering the internationaltaxstructure. Raising the Corporate Tax Rate The corporate taxrate is currently 21%, levied as a flat rate, reduced froma top marginalrate of 35% before 2018 by the 2017 tax law commonly known as the TaxCuts and Jobs Act (TCJA; P.L. 115-97). President Biden has proposed that the corporate taxrate be increased to 28%. Senator Sanders has proposed (S. 991) a graduated corporate rate with most corporate income taxed at 35%. The CongressionalBudget Office (CBO) estimates that raising the corporate taxrate by one percentage point would raise $99 billion overFY2021-FY2030, implying an increase of around $1.4 trillion for S. 991 and $700 billion for the Biden Administration proposal. President Biden has also proposed an alternative minimumtax basedon financial or book income. Estimates provided by the Administration suggest these changes could raisemore than $2 trillion over 15 years. Increasing the Minimum Tax on Foreign Source Income (G ILTI) Severalbills, including S.20 (Klobuchar), S.714 (Whitehouse), H.R. 1785 (Doggett), and S.991 (Sanders) would increasethe minimumtaxon foreign source income, known as the taxon Global Intangible Low Taxed Income, or GILTI, enacted in 2017. (See CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L.115-97), by Jane G. Gravelle and Donald J. Marples for a discussion ofinternationaltaxrules.) Under current law, GILTI targets intangible income that is easily shifted by allowing a deemed deduction equal to 10% of tangible assets. Any remaining income is allowed a deduction of 50% (37.5% after 2025) and then taxed at 21%. The U.S. internationaltaxsystemallows for credits for foreign taxes paid. Credits are limited to U.S. taxes due on foreign-source income, butimposed on an overallbasis across countries. This allows for cross-crediting, orthe use of credited taxes paid in high-taxcountries to offset U.S. income tax due in low-tax countries. For GILTI, the credit is limited to up to 80% of foreign taxes are paid. A proposalby the Biden Administration andin four bills in the 117th Congress-S.20, S. 714, H.R 1785, and S. 991- would make GILTI fully taxable by eliminating the deduction for tangible investment and eliminating the 50% deduction. Allbut S.991 would impose a21% rate (the current-law rate); S.991 would impose a rate of 35%. https://crsrepc

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