Tuesday, January 10, 2012

Corporate Tax Revenue is Not Rebounding with Corporate Profits Rebounding

Have Corporations Given Themselves a Tax Cut?

The Wall Street Journal reports (that is the good part of the Journal, the actual news part) on the trend in corporate profits and the trend in corporate income tax collection.  The results are not what one would have expected.  First of all, despite all the “Obama is anti-business” rhetoric, corporate profits are doing extremely well.

[TAXHERD]After plummeting from 2007 through 2009, U.S. corporate profits regained their precrisis peak in early 2010, according to the Bureau of Economic Analysis. The latest, revised data released just before Christmas showed corporate profits before tax rose to a record $1.97 trillion in the third quarter of 2011.

This of course explains why corporate America is anti-Obama.  They just cannot stand the fact that they are doing well under a moderate Democratic President.

As far as corporate taxes are concerned, everybody knows the U. S. has the highest rates in the world and that corporate taxes are just crushing American business.  Not so fast.

But corporate tax receipts, as reported by the Treasury Department, remain lackluster, even as the economy has gained some ground of late. Although they have trended higher in recent months, corporate taxes measured on a 12-month basis were still under $200 billion in November. That is well below a precrisis peak of about $380 billion and still far below the government's fiscal 2012 target of $332 billion.

How can this be?  Well in part it is the fact that corporations are using past losses to offset current income, a perfectly reasonable and logical and correct position to take.  It may be also because companies have kept profits overseas.  The interesting part though is looking at the data and what it says about the effective corporate tax rate.  Let’s see, about $2 trillion in profits, $200 billion in taxes, hm, that’s 10%.  Yes the data shows that crushing U. S. corporate income tax rate is 10%.

So nice going corporate America, you are just about done with paying your fair share of the bill.  Now you can spend even more to elect candidates that will relieve you of the bill altogether.

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