Corporate Tax Increase In The Offing
January 10, 2000
The Clinton Administration budget undoubtedly will contain a significant increase in corporate taxes. The administration will justify this action by the need to crack down on abusive corporate tax shelters that are said to be undermining the corporate tax base and reducing tax revenues.
There is very little data supporting this contention. In fiscal year 1999, which ended in September, the federal government took in $184.7 billion in corporate income taxes, whereas in 1992, it collected just $100.3 billion. Thus, revenues have risen 84 percent, while the gross domestic product has grown just 47 percent.
Furthermore, it is important to remember that corporate tax receipts in any given year do not necessarily correspond to corporate tax liabilities in that year. As Ken Kies of the accounting firm of PricewaterhouseCoopers recently testified before the House Ways and Means Committee, there are many reasons for this.
- Current corporate tax payments may actually be for a previous year's liability, and payments may be reduced because of refunds on previous years' taxes.
- Most corporations pay taxes on a fiscal year basis, rather than the calendar year as individuals do.
- Quarterly tax payments are based on estimates that can change radically when the books are closed for the year.
The evidence suggests that the recent slight decline in corporate tax payments is mainly the result of higher capital investment and business expenses associated with the Y2K computer problem, which are deductible on corporate returns.
Finally, all corporate taxes ultimately are paid by individuals. In 1998, U.S. corporations paid 64 percent of their after-tax profits to shareholders, who were then taxed again on the same profits.
Source: Bruce Bartlett senior fellow, National Center for Policy Analysis, January 10, 2000.
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