Corporate Taxation in the United States

Abstract

and National Bureau of Economic Research Corporate Taxation i n t he United States THE CORPORATION INCOME TAX has been the focus of much criticism and debate in the United States during the past decade. Many hold it responsible for the low level of business investment in the United States, and it has been criticized as a fundamentally unfair and illogical tax because it taxes corporations as independent entities, regardless of the tax brackets of individual shareholders. Much of the academic discussion in the 1970s about reform of the corporate tax centered on the integration of corporate and individual income taxes, to make the corporate tax essentially a withholding mechanism for the individual income tax.' More recently the emphasis has shifted toward reform by repeal, and indeed President Reagan himself has called for the abolition of the corporate tax. Any analysis of the current economic effects of the U.S. corporate tax should begin with the recognition of what has happened over the years to corporate tax revenues. Put simply, the corporate tax has been disappearing. The marked drift in composition of federal revenues away I am grateful to James Hines and David Reishus for able research assistance, to Don Fullerton for providing unpublished data, to them and to Henry Aaron, Harvey Galper, Mervyn King, Emil Sunley, Alvin Warren, and members of the Brookings Panel for comments on early drafts, and to the Sloan Foundation for financial support through a Sloan Research Fellowship. The views expressed herein should not be attributed to any organization with which I am associated.

Why Have Corporate Tax Revenues Declined?

“…The sensitivity of average tax rates to economic conditions is only one of their many shortcomings as a measure of corporate tax burdens. It is well known (see Auerbach (1983) or Fullerton (1984)) that average tax rates may provide little information on the pattern of marginal tax incentives facing new investments. In addition, aggregate average tax rates may conceal important differences in tax burdens across different assets and different -10-by banks that invest in municipal debt, as part of the total tax burden.…”

Overestimating the Effect of Complementarity on Skill Demand

“…19 Similar approaches are employed in Auerbach et al (1983), Fullerton and Karayannis (1993), Gravelle (1982), Gravelle (1983), Gravelle (1994), andKing andFullerton (1984) [1979][1980][1981][1982][1983][1984][1985][1986][1987]. + significant at 10%; * significant at 5%; * * significant at 1% I-O Accounts classification level, using the mapping from 4-digit SIC industries in the ASM to the I-O Accounts in Young (1991).…”

The Future of Capital Income Taxation*

“…For example, a country with low revenue requirements and a desire to attract capital may have no interest in raising its 12 See Comin and Philippon (2005). 13 See Auerbach (1983Auerbach ( , 1986). …”