Head Smacker: U.S. Corporate Profits at All-Time Highs; Taxes at All-Time Lows. But Key Leaders Say We Need to Cut Corporate Taxes


October 9, 2014

An interesting confluence of findings in the last couple of days. First, the International Monetary Fund (IMF) projected economic growth in the U.S. would exceed other major developed nations next year, predicting, as reported in the New York Times, we would “advance ahead of many large economies, not just in terms of growth but also in corporate profitability and international competitiveness.”

Second, Thomas Hungerford, one of the very smart economists at the Economic Policy Institute, posted a blog documenting that corporate profits last year were at their highest point as a share of the national economy since 1946. If you are worried about how corporate income taxes cut into profits, Hungerford points out that their after-tax profit shares were 15 percent in 2013, also the highest since 1946. Here’s one of his graphs:


You can see that while corporate profits took a dive in the 2008-2009 recession, they’ve been doing quite nicely since.

Taxes are not putting a crimp in corporate profits, because they are not paying much. Hungerford points out that corporate taxes amounted to more than one-quarter of federal revenues in the Eisenhower years, but only made up 10 percent of federal revenues last year.

And yet…

Leaders in both parties have expressed support for reducing corporate tax rates, as though the corporate income tax rate in the law books (35 percent) is what corporations actually pay. A July Citizens for Tax Justice report looked at 288 Fortune 500 companies that were profitable each year from 2008 through 2012. (They’re very smart over at CTJ too.) What these corporations actually paid? Federal corporate income taxes averaged 19.4 percent over the five years. The Obama Administration has supported corporate rate reduction, but at least they have proposed some corporate revenue increases that would pay for infrastructure investments, and have specified other corporate loophole closings to pay for the rest of the rate reductions they seek. Senate Minority Leader Mitch McConnell has said his goal is “getting rates down and making America more competitive, not about giving the government even more revenue.” House Budget Committee Chair Paul Ryan (expected soon to be head of the House’s tax-writing committee), in discussing corporate tax policy, asserted “These high tax rates discourage investment and job creation, distort business activity, and put American businesses at a competitive disadvantage.”

Not according to the IMF’s projections for next year, and not according to past data either. The Citizens for Tax Justice report also cited international comparisons made by the Organization for Economic Cooperation and Development (OECD) for 2011. Here’s what they found:



So, if our corporate tax policy is damaging our economy, it surely isn’t because our taxes are too high. In fact, still other new research cited by Matt O’Brien in the Washington Post shows that the harsher austerity measures in European nations are why their economies are struggling. The U.S. is doing better because of federal spending at the beginning of the recession, and continued stimulus by the Federal Reserve when Congress started its austerity drive. We may be doing better, but we still have stunted earnings, millions of workers closed out of the labor force, and unacceptable levels of poverty. Far from needing corporate tax cuts, we can grow more quickly if we restore at least some of the corporate revenues lost over the decades to invest in education, nutrition, housing, health care, and other ways to increase economic security and jobs.

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