Corporate Taxes

Business bashing has become high sport, with political candidates leading a public outcry. Some have pointed to a recent General Accounting Office report on coop-edrporate income taxes as "proof" that U.S. businesses are tax evaders. In fact, this slipshod report contains no new information about corporate income taxes, or evidence of tax cheats in the boardroom.

About 60% of U.S. corporations don't pay income tax in any given year, often because corporate profits fall below the taxable level as set by law. That's no different from the estimated 50% of individuals who pay virtually no income tax in any given year. Millions of American workers don't even have to file returns, yet all corporations – even those in bankruptcy – do.

When companies make good money, they pay substantial taxes. Profitable corporations have paid income taxes at a fairly steady rate – 22% of profits over the last twenty years. The only real dip in this tax rate followed two recessions when corporate profits were hit particularly hard.

And U.S. businesses have remained a steady contributor to the U.S. Treasury. The percent of total U.S. Treasury receipts paid by corporations since the tax code was overhauled in 1981 has been a fairly consistent 9–11.5%, again with the exception of two post-recession declines.

Corporate income tax payments to the federal government have been level since the 1980s, even though "corporations" – as recognized by the U.S. tax code – are a declining sector of our economy, as recent alarms about the loss of manufacturing point out.

Most of our economic growth – in profits, job creation, and market value – is from smaller companies, partnerships, and consultants, which file and pay taxes under individual tax rates. Their tax payments are not captured in "corporate" data, because the IRS classifies them as "individuals."

Few among us voluntarily pay Uncle Sam more taxes than we owe. Should we expect companies to act any differently? On the contrary, if you or your retirement fund depend on stocks in American companies, what you expect and deserve are companies that pay all the taxes they legally owe, but no more than they owe – instead, using the money to grow the company and benefit the investors.

Martin Regalia, Ph.D. is Chief Economist of the United States Chamber of Commerce.

As published in USA Today, April 12, 2004.