NCPA - National Center for Policy Analysis

Corporations Pay Their "Fair Share"

October 30, 2000

On October 19, the Institute on Taxation and Economic Policy (ITEP), a union-backed organization affiliated with Citizens for Tax Justice, issued a new study showing that a number of large corporations paid no federal income taxes in at least one year between 1996 and 1998. It further charged that the overall federal tax burden on corporations is falling although corporate profits are rising. The implication is that Congress should move to restrict corporate tax shelters that keep them from paying their "fair share" of taxes.

First, there is no downward trend in federal corporate tax receipts.

  • In fiscal year 2000, which ended on September 30, corporate taxes were up 12.6 percent, while the gross domestic product was up just 6 percent.
  • Since 1992, corporate tax receipts have more than doubled, while GDP has risen only 70 percent.
  • Over the same period, corporate taxes have risen from 9.2 percent of total receipts to 10.3 percent, and from 1.6 percent to 2.1 percent of GDP.

Second, corporations pay vast amounts of taxes to state and local governments, they pay half of all payroll taxes, and those that operate in other countries pay large amounts of tax in those countries.

Furthermore, according to Kenneth Kies of the PricewaterhouseCoopers:

  • The ITEP analysis compares taxes to reported profits, although reported profits can legitimately differ sharply from taxable income.
  • Stock options are not considered a cost to the corporation for financial accounting purposes, but usually can be deducted for tax purposes.
  • Finally, corporations have increased depreciation expenses -- which lowers taxable income -- because investment by U.S. businesses has more than doubled since 1993, rising from 10.3 percent of GDP to 14.2 percent.

Instead of raising taxes on corporations, we should be cutting them.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 30, 2000.


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