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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



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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