What About Corporate Taxes?

While the Bush-era tax cuts have cost the U.S. Treasury trillions of dollars since they were enacted, corporate income taxes are an important part of the story of how tax cuts affect the federal budget. The official top marginal tax rate for corporations is 35 percent— meaning that corporations are meant to pay 35 cents in taxes for every dollar of profit over $18 million. However, on average corporations pay well below that rate. According to the Congressional Budget Office, corporate income taxes totaled around 9.5 percent of corporate profits in fiscal 2011. In other words, after accounting for deductions, credits, and loopholes, corporations on average pay far less than 35 percent of profits toward federal income taxes.

Loopholes are parts of the tax code that exempt certain activities from standard taxation, and thus cost the government money in the form of lost revenue. While the official marginal tax rate for U.S. corporations is one of the highest in the world, loopholes make effective corporate  tax rates much lower than those of peer nations. According to the Organization for Economic Cooperation and Development (OECD) and reporting by the New York Times, the corporate tax burden is lower in the U.S. than in nearly every other developed nation.

Income taxes paid by individuals and families are much larger than taxes paid by corporations, as you can see in the figure below, in part because the wages and salaries of all Americans are much larger than the profits of all U.S. corporations. But corporate tax avoidance also plays a role. If corporations actually paid 35 percent of their profits in federal income taxes, that would have amounted to an additional $165 billion in revenue to the U.S. Treasury in fiscal 2012, and would have reduced the budget deficit that year by around 14 percent. For more on this, see The Untold Story of Deficits in Washington.