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1 1 (June 21, 2021)

handle is hein.crs/govedsn0001 and id is 1 raw text is: I Resesrch $arvice nt tming th~ ~v~$sIat~ PA ta since 'i Updated June 21, 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 of the pass-through organizational formfor businesses, and international profit shifting. Whereas U.S. corporate taxrevenue has decreased, corporate taxrevenue in other Organis ation for Economic Co-operation and Development (OECD) member countries has, on average, increased. Since 1965, average corporate taxrevenue collectedby OECD countries has increased from2.1% of GDP to 3.1% of GDP in 2018 (see Figure 1). OECD data indicate that U.S. corporatetaxrevenue (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 0 s a Unted States OECD Ave ge Source: OECD Tax on Corporate Profits, https://data.oecd.org/tax/ tax-on-corporate-profits.htm, down loaded 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 of GDP has been les s than the OECD average (which includes the United States). In 2018, OECD average corporate taxrevenue as a percentage ofGDP was 3.1 times U.S. corporate tax revenue as a percentage of GDP. Corporate Tax Proposals Pres ident Biden's budget proposes an increase in the amount ofrevenue raised by the corporate taxsystemby about $2 trillion over the next 10 years. Several legislative proposals in the 117th Congress would increase corporate taxes, in most cases by altering the internationaltax structure. 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 theTaxCuts and Jobs Act (TCJA; P.L. 115-97). President Biden has proposed an increase to 28% with a revenue gain of $858 billion for FY2022-FY2031. Senator Sanders has proposed (S. 991) a graduated corporate rate with most corporate income taxed at 35%. President Biden has alsoproposed an alternative minimum taxbased on financial or book income for corporations with more than $2billion in earnings. Increasing the Min imum Tax on Foreign Source Income (GILTi) 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 of international taxrules .) Under current law, GILTI targets intangible income by allowing a deemed deduction equalto 10% of tangible as sets. Any remaining income is allowed a deduction of 50% (37.5% after 2025) and then taxed at 21%. The U.S. international taxsystemallows 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 forcross-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% offoreign taxes are paid. The Biden Administration budget proposals and 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%. The Biden Administration plan would allow a deduction to set the GILTI tax rate at 21% rather than 28%. These proposals appear to be motivated, in part, by concerns that the exemption for tangible income might encourage the movement ofinvestment abroad. Some propo sals would increase the credit amount for GILTI to 100% (S. 714, H.R 1785, and S.991, but not S.20 or the https://crsrept

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