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1 1 (May 8, 2024)

handle is hein.crs/govepqu0001 and id is 1 raw text is: Congressional Research Service Informing the Ieg~sk~tiv~ debate since 1914 Updated May 8, 2024 Trends and Proposals for Corporate Tax Revenue U.S. corporate tax revenues have declined, relative to the size of the economy, since the mid-1960s. Corporate tax revenue as a percentage of gross domestic product (GDP) fell from 3.9% in 1966 to approximately 1.6% in 2023. This decline in corporate tax revenue 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. Average corporate tax revenue collected by OECD countries has increased from 2.1% of GDP in 1965 to 3.3% of GDP in 2021 (see Figure 1). Figure I. Corporate Tax Revenue, as a Percentage of GDP, 1965-2021 4 S o b Source: OECD Tax on Corporate Profits, https://data.oecd.org/tax/ tax-on-corporate-profits.htm, downloaded April 23, 2024. Note: Tax on corporate profits includes taxes levied by all levels of government. Figure 1 tracks the differing trends in U.S. and OECD corporate tax revenue over time. The United States collected 1.8 times as much corporate tax revenue as the OECD average in 1965 (as measured in shares of GDP). 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 2021, OECD average corporate tax revenue as a percentage of GDP was about twice as large as the 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 $2.6 trillion over the next 10 years. Several legislative proposals would increase corporate taxes, in some cases by altering the international tax structure. The House-passed Build Back Better Act (BBBA; H.R. 5376) would have raised around $800 billion in corporate taxes in FY2022-FY2031, but that legislation did not advance. The bill, renamed the Inflation Reduction Act (P.L. 117-169), as enacted, imposed a minimum tax of 15% on book income of large corporations and a 1% tax on stock buybacks. Raising the Corporate Tax Rate and Revising the Mn mum Tax and Stock Buyback Tax 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 $1.3 trillion for FY2025-FY2034. S. 4098 (Sanders) and H.R. 7933 (Schakowsky) propose a graduated corporate rate with most corporate income taxed at 35%. President Biden has also proposed to raise the minimum tax rate on book income to 21% and to increase the stock buyback tax rate to 4%. S. 413 (Brown) and H.R. 5953 (Sykes) would raise the stock buyback tax rate to 4%. S. 1559 (Barrasso) and H.R. 3210 (Arrington) would repeal the minimum tax and H.R. 515 (Kustoff) would repeal the stock buyback tax. Increasing the Minimum Tax on Foreign Source Income (GILT ) President Biden's budget proposals and several bills in the 118th Congress would increase the minimum tax on foreign source income, known as the tax on Global Intangible Low Taxed Income or GILTI, enacted by TCJA 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 would increase the tax rate to 21%, and four bills in the 118th Congress-S. 357 (Whitehouse), S. 4098, H.R. 884 (Doggett), and H.R. 7933-would tax income at full rates. All of the proposals would eliminate the deemed deduction for tangible assets

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