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1 Chris R. Edwards, The Corporate Tax Burden 1 (1993)

handle is hein.taxfoundation/srbxz0001 and id is 1 raw text is: FOUNDATION March 1993, No. 18 The Corporate Tax Burden B' Cris R, I'dtvards xc on ist h~l.v IFountdaltioll Following the 1992 election, Americans are more concerned about the federal fiscal situation than they have been in years. This concern is justified as the fiscal 1993 budget deficit is a record high of $32- billion. At the same time, President Clinton has a raft of new spending proposals that he needs to finance. ( onsequenth, corporate income is once again being targeted by the government as a source of increased revenues. hc tederal government currently raises $100 billion a year from the corporate income tax, and state and local governments tap corporate America for an additional $25 billion. Federal corporate tax rates and bases have been on a roller coaster ride in recent years as rates have gone up and down and bases have expanded and contracted. t nder current law corporate taxable income above $7,000 is subject to an income tax rate of 34 percent. 1I'gilre / Fed(/ral Inor)rate Icome lMxv Receipts li scal 'eaurs / 90-1993 120 100 801- 40 20 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93e ,tirce: Bidget Baselines, f)ficc of Managelctlt and Budget , Jan tnlAr 1991 Trends in Corporate Income Taxes Because corporate profits are volatile, rising in booms and falling in recessions, so, too, arc government receipts from the corporate income tax. Figure 1 and Table I show that federal receipts (lipped during the recessions of both the early 1980s and early 1990s. liowcvcr, the long- term trend of federal corporate tax receipts is upward, from $64.6 billion in 1980 to $100.3 billion in 1992. Also, a long-term downward trend in corpo- rate receipts as a percent of total federal receipts seems to have halted over the past decade (see Table 1). In fact, corporate receipts as a percent of total federal receipts are expected to rise in coming years. Federal legislation during the 1980s first cut, then raised corporate taxes. The Economic Recovery Tax Act of 1981 (ERTA) represented a significant cut in corporate income taxes, both through lower tax rates and various provisions designed to spur capital formation which effec- tively reduced the corporate income tax base. However, subsequent legislation largely reversed the impact of the 1981 Act and led to increases in corporate taxes. The Tax Equity and Fiscal Responsibiity Act of 1982 (TEFRA) was a straightforward attempt to recapture some of the revenues returned to the private sector by ERTA in 1981. The Tax Reform Act of 1986 (TRA'86), on the other hand, represented a major reshuffling of tax liability. While the 1986 Act lowered the marginal corpo- rate tax rate from 46 to the current 34 percent, it significantly broadened the tax base and, on balance, increased corporate income taxes. Table 1 shows this impact as federal corporate tax receipts rose significantly from 1987 to 1989, then dropped off after 1989 as the economy slipped into a recession. Total revenue collections tell only part of the story of the impact corporate taxes have on the economv. Effective marginal tax rates, which have a large impact on the level and composition

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