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1 1 (December 17, 2021)

handle is hein.crs/govegcu0001 and id is 1 raw text is: Congressional Research Service Informing the legislative debate since 1914 0 Updated December 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 Organization 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). Figure 1. Corporate Tax Revenue, as a Percentage of GDP, 1965-2018 4 s / 25 2 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 budget proposes an increase in the amount of revenue raised by the corporate tax system by about $2 trillion over the next 10 years. Several legislative proposals would increase corporate taxes, in most cases by altering the international tax structure. The House-passed Build Back Better Act (BBBA; H.R. 5376) would raise around $800 billion in corporate taxes in FY2022-FY2031. The Senate Finance Committee draft of the BBBA contains similar provisions. 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 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 also proposed an alternative minimum tax based on financial or book income for corporations with more than $2 billion in earnings. The BBBA would impose a minimum tax of 15% on firms with $1 billion or more in earnings. Senator Warren's proposal (S. 2680) would impose a minimum tax on corporations with over $100 million in earnings. increasing the Minimum Tax on Foreign Source Income (GILTI) Several bills in the 117th Congress, including S. 20 (Klobuchar), S. 714 (Whitehouse), H.R. 1785 (Doggett), S. 991 (Sanders), and the BBBA 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 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%, leading to a tax rate of 10.5% (13.125% after 2025). Foreign oil extraction income is excluded and not subject to any U.S. tax. Current law allows credits for foreign taxes paid; the credits are limited to U.S. taxes due on foreign-source income, but are imposed on an overall basis across countries. This treatment allows for 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 80% of foreign taxes paid. The Biden Administration's budget and four bills in the 117th Congress-S. 20, S. 714, H.R. 1785, and S. 991- would eliminate the deemed deduction for tangible assets and tax GILTI at 21% (35% in S. 991). The BBBA would reduce the deemed deduction to 5% and tax GILTI at 15.051%. In all of the proposals, the foreign tax credit would be limited by country, and most proposals would increase the GILTI credit to 100% (95% in the BBBA). Foreign oil extraction income is included in GILTI in both BBBA and the Administration proposal.

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