WV Center on Budget and Policy > Blog > Tax and Budget > Corporate Tax Reform Can Play a Role in Deficit Reduction

Corporate Tax Reform Can Play a Role in Deficit Reduction

While there is a plenty of disagreement over how to handle the federal deficit and debt, one area almost everyone agrees on is the need for corporate tax reform. But while everyone agrees that the loopholes, deductions, and giveaways in the corporate tax code should be reigned in, both sides of the aisle also say the reform should be revenue neutral, meaning that the revenue raised by closing loopholes and removing deductions would be used to lower the corporate tax rate. 

Critics point out that the U.S. corporate income tax rate is one of the highest in the world, at 35%. However, since there are so many deductions and loopholes in the code, that number is irrelevant. According to the Treasury Department, U.S. corporate income taxes are below average. Over the 2000-2005 period, U.S. corporations paid 13.4 percent of their profits in corporate income taxes, while other OECD (Organization of Economic Cooperation and Development) countries paid 16.1 percent of their profits in corporate income taxes.
 
Corporate tax revenue has also been nearly flat for decades, compared to individual income tax revenue. As the graph below shows, real corporate income tax revenue has seen almost no growth since 1969, before spiking during the housing boom, before falling off during the recession. In comparison, real individual income tax revenue has grown steadily since 1969, before dropping off from the Bush tax cuts, and again during the recession. 
 
Source: White House Office of Budget and Management
 
So while corporations pay below average taxes in the U.S. and haven’t seen a substantial tax increase in 40 years, compared to American households, it seems as if corporate tax reform is a solid candidate for playing a role in deficit reduction. There is no reason why corporate tax reform needs to be revenue neutral, doing so will simply shift more of the burden of deficit reduction onto the middle class.

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