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1 1 (May 17, 2021)

handle is hein.crs/govedie0001 and id is 1 raw text is: Cogesoa esac evc Updated May 17, 2021 Trends and Proposals for Corporate Tax Revenue Since the mid-1960s, U.S. corporate tax revenues 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 tax revenue since 1965 is due to several factors. Average tax rates have declined, primarily due to reductions in the statutory rate and changes in depreciation. The corporate tax base has also been reduced through declining profitability (return on assets), increased use of the pass-through organizational form for businesses, and international profit shifting. Whereas U.S. corporate tax revenue has decreased, corporate tax revenue in other Organisation for Economic Co-operation and Development (OECD) member countries has, on average, increased. Since 1965, average corporate tax revenue collected by 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 tax revenue (including corporate tax revenue collected by state and local 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. 3s 2.5 15 0.5 Ufted states OECD 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 includes taxes levied by all levels of government. Figure 1 also shows that the United States collected 1.8 times as much corporate tax revenue compared to the OECD average in 1965. Since 1981, however, U.S. corporate tax revenue as a percentage of GDP has been less than the OECD average (which includes the United States). In 2018, OECD average corporate tax revenue 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 tax plan framework seeks to increase the amount of revenue raised by the corporate tax system. Several legislative proposals in the 117th Congress would affect corporate taxes. A number of proposals would likely increase corporate tax revenues, in most cases by altering the international tax structure. Raising the Corporate Tax Rate The corporate tax rate is currently 21%, levied as a flat rate, reduced from a top marginal rate of 35% before 2018 by the 2017 tax law commonly known as the Tax Cuts and Jobs Act (TCJA; P.L. 115-97). President Biden has proposed that the corporate tax rate be increased to 28%. Senator Sanders has proposed (S. 991) a graduated corporate rate with most corporate income taxed at 35%. The Congressional Budget Office (CBO) estimates that raising the corporate tax rate by one percentage point would raise $99 billion over FY2021-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 minimum tax based on financial or book income. Estimates provided by the Administration suggest these changes could raise more than $2 trillion over 15 years. Increasing the Minimum Tax on Foreign Source Income (GILTI) Several bills, including S. 20 (Klobuchar), S. 714 (Whitehouse), H.R. 1785 (Doggett), and S. 991 (Sanders) would increase the minimum tax on foreign source income, known as the tax on 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 of international tax rules.) 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. international tax system allows for credits for foreign taxes paid. Credits are limited to U.S. taxes due on foreign-source income, but imposed on an overall basis across countries. This allows for cross-crediting, or the use of credited taxes paid in high-tax countries 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 proposal by the Biden Administration and in 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. All but S. 991 would impose a 21% rate (the current-law rate); S. 991 would impose a rate of 35%. gross.gov

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