U.S. Corporations Pay Highest Taxes in History
Corporate tax revenue is at an all-time high in 2021 — even after 2017 tax cuts
Corporations paid $371.8 billion in federal income taxes in 2021, an all-time high and a 75% increase compared to 2020, according to budget results released by the Treasury Department on October 22, 2021.
Corporations also pay billions of dollars in state income taxes, payroll taxes, excise taxes, sales taxes and property taxes. Combined, these taxes support critical healthcare programs, infrastructure improvements and scientific research.
The surge in corporate revenues came even as America struggled with the Covid-19 pandemic and a crippling recession. Importantly, the record level of revenues was achieved with a lower corporate tax rate than prior to 2017. These unprecedented numbers demonstrate that the U.S. tax code is balancing the need to support vital federal programs with the need to maintain a competitive environment that allows American companies to win in global markets and create high-paying jobs at home. Raising corporate taxes would put this critically important balance at risk.
Corporate Rates Down, Corporate Tax Revenue Up
In 2017, Congress reduced the corporate income tax rate from 35% to 21%, while simultaneously expanding the amount of corporate income subject to tax. In 2017, before the lower corporate rate went into effect, corporate tax revenues were $297 billion, 25% lower than in 2021. Corporate taxes as a percentage of GDP increased during the same period, from 1.54% to 1.66%.
The 2017 tax reform bill has brought in more corporate tax revenue than expected. Shortly after it passed, the CBO estimated corporate tax revenues would hit $327 billion by 2021. Instead, they reached over $370 billion in 2021, 13% more than expected.
Despite these record-breaking revenues, policymakers are considering increasing the taxes American companies pay on income earned abroad, a move that would make U.S. businesses less competitive in global markets and that would slow our economic recovery and job growth at home.
The U.S. is the only country in the world that collects a minimum tax on the income its companies earn from their foreign operations, a policy known as GILTI. While the Organisation for Economic Co-operation and Development recently endorsed a global minimum tax, it faces many obstacles to actual implementation.
U.S. multinationals employ 29.3 million Americans. Raising taxes on these companies now when they are already paying record taxes would leave them with less money to spend on hiring more people and to invest in new plants and equipment and research and development.
The proposed corporate tax increases would also make it harder for U.S. companies to compete and win in foreign markets — markets that serve 95% of the world’s population — and would result in fewer jobs at home. When American companies succeed against global competitors, their success increases demand for the goods and services their workers produce at home.
Researchers at Harvard Business School and the University of Michigan confirm the strong relationship between a U.S. company’s growth in foreign markets and its growth at home. When U.S. companies expand their operations outside the United States, they hire more people at home, pay higher wages to their U.S. workers, and invest more in property, plants and equipment in the United States.
With record tax revenues and underlying economic instability caused by the pandemic, now is not the time to increase corporate taxes.
To learn more about the Alliance for Competitive Taxation, please visit www.actontaxreform.com.