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1 1 (August 27, 2021)

handle is hein.crs/govegcx0001 and id is 1 raw text is: 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 taxbase has also been reduced through declining profitability (return on assets), increaseduse of the pass-through organizationalformfor businesses, and internationalprofit shifting. Whereas U.S. corporate taxrevenue has decreased, corporate taxrevenue in other Organization for Economic Co-operation and Development (OECD) member countries has, on average, increased. Since 1965, average corporate taxrevenue collected by OECD countries has increased from2.1% 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 t st s c 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 ofGDP has been les 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 Proposak 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 would increase corporate taxes, 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 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 Minimum Tax on Foreign Source Income (GILTI) Severalbills in the 117th Congress, including S. 20 (Klobuchar), S.714 (Whitehouse), H.R.1785 (Doggett), and S. 991 (Sanders) would increase the minimum taxon 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 201 ZRevision (P.L. 115-97), by Jane G. Gravelle and Donald J. Marples for a discussion of international taxrules.) Under currentlaw, 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%. Credits are allowed for foreign taxes paid; the credits are limited to U.S. taxes due on foreign-sourceincome, but are imposed on an overallbasis across countries. This allows for the use of credited taxes paid in high-taxcountries to offset U.S. income taxdue in low-tax countries. ForGILTI, the credit is limited to up to 80% of foreign taxes paid. The Biden Adminis tration 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. Allbut S.991 would impose a 21% rate (the current-lawrate); 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%. The credit would be limited by country andmostproposals would increase theGILTI credit to 100%. These proposals appear to be motivated, in part, by concerns that the exemption for tangible income might encourage the movement ofinvestment abroad. The Biden proposalwould taxforeign oilincome at the 21% rate, whereas S.714, H.R. 1785, and S. 991 would taxall foreign oil income at the full rate. Updated August 27, 2021

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