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April 14, 2021
Trends and Proposals for Corporate Tax Revenue
Since the mid-1960s, U.S. corporate tax revenues have
corporate tax system. Several legislative proposals in the
declined, relative to the size of the economy. Corporate tax
117th Congress would affect corporate taxes . A number of
revenue as a percentage of gross domestic product (GDP),
proposals would likely increase corporate tax revenues, in
which was 3.9% in 1965, has fallen to approximately 1.0%
most cases by altering the international tax structure.
in 2020. The decline in corporate tax revenue since 1965 is
due to several factors. Average tax rates have declined,
Raising the Corporate Tax Rate
primarily due to reductions in the statutory rate and changes
The corporate tax rate is currently 21%, levied as a flat rate,
in depreciation. The corporate tax base has also been
reduced from a top marginal rate of 35% before 2018 by the
reduced through declining profitability (return on assets),
2017 tax law commonly known as the “Tax Cuts and Jobs
increased use of the pass-through organizational form for
Act” (TCJA; P.L. 115-97). President Biden has proposed
businesses, and international profit s hifting.
that the corporate tax rate be increased to 28%. Senator
Sanders has proposed (S. 991) a graduated corporate rate
While U.S. corporate tax revenue has decreased, corporate
with most corporate income taxed at 35%. The
tax revenue in other Organisation for Economic Co-
Congressional Budget Office (CBO) estimates that raising
operation and Development (OECD) member countries has,
the corporate tax rate by one percentage point would raise
on average, increased. Since 1965, average corporate tax
$99 billion over FY2021-FY2030, implying an increase of
revenue collected by OECD countries has increased from
around $1.4 trillion for S. 991 and $700 billion for the
2.1% of GDP to 3.1% of GDP in 2018 (see Figure 1).
Biden Administration proposal. President Biden has also
OECD data indicate that U.S. corporate tax revenue
proposed an alternative minimum tax based on financial or
(including corporate tax revenue collected by state and local
“book” income. Estimates provided by the Administration
governments) fell from 3.9% to 1.0% during the same time.
suggest these changes could raise more than $2 trillion over
15 years.
Figure 1. Corporate Tax Revenue, as a Percentage of
GDP, 1965-2018
Increasing the Minimum Tax on Foreign Source
Income (GILTI)
Several bills, including S. 20 (Klobuchar), S. 714
(Whitehouse), H.R. 1785 (Doggett), and S. 991 (Sanders)
would increase the minimum tax on foreign source income,
known as the tax on Global Intangible Low Taxed Income,
or GILTI, enacted in 2017. (See CRS Report R45186,
Issues in International Corporate Taxation: The 2017
Revision (P.L. 115-97), by Jane G. Gravelle and Donald J.
Marples for a discussion of international tax rules.) Under
current law, GILTI targets intangible income that is easily
shifted by allowing a deemed deduction equal to 10% of
tangible assets. Any remaining income is allowed a
deduction of 50% (37.5% after 2025) and then taxed at
Source: OECD Tax on Corporate Profits, https://data.oecd.org/tax/
21%.
tax-on-corporate-profits.htm, downloaded March 31, 2021.
Note: Tax on corporate profits includes taxes levied by al levels of
The U.S. international tax system allows for credits for
government.
foreign taxes paid. Credits are limited to U.S. taxes due on
foreign-source income, but imposed on an overall basis
Figure 1 also shows that the United States collected 1.8
across countries. This allows for “cross-crediting,” or the
times as much corporate tax revenue compared to the
use of credited taxes paid in high-tax countries to offset
OECD average in 1965. Since 1981, however, U.S.
U.S. income tax due in low-tax countries. For GILTI, the
corporate tax revenue as a percentage of GDP has been less
credit is limited to up to 80% of foreign taxes are paid.
than the OECD average (which includes the United States).
In 2018, OECD average corporate tax revenue as a
A proposal by the Biden Administration and in four bills in
percentage of GDP was 3.1 times U.S. corporate tax
the 117th Congress—S. 20, S. 714, H.R. 1785, and S. 991—
revenue as a percentage of GDP.
would make GILTI fully taxable by eliminating the
deduction for tangible investment and eliminating the 50%
Corporate Tax Proposals
deduction. All but S. 991 would impose a 21% rate (the
President Biden’s “Made in America” tax plan framework
current-law rate); S. 991 would impose a rate of 35%.
seeks to increase the amount of revenue raised by the
https://crsreports.congress.gov
Trends and Proposals for Corporate Tax Revenue
These proposals to change the tax treatment of GILTI
acceleration provisions. There are also BEAT provisions in
appear to be motivated, in part, by concerns that the
S. 725 and H.R. 1786, but they do not accelerate the rate
exemption for tangible income might encourage the
change and elimination of credits or remove certain
movement of investment abroad. Some proposals would
payments and they reduce the exemption to $100 million.
increase the credit amount for GILTI to 100% and impose a
These bills include provisions to add certain payments that
per-country limit for all foreign tax credits (S. 714, H.R.
firms elect to capitalize to BEAT.
1785, and S. 991, but not H.R. 1785).
Anti-Inversion and Treaty-Shopping Rules
The Joint Committee on Taxation (JCT) has estimated that
Under current law, firms that attempt to invert (move their
the changes to GILTI in S. 991 would increase revenue by
headquarters abroad) by merging with foreign firms are
$692 billion from FY2021 to FY2031 with a 21% tax rate.
treated as U.S. firms if the U.S. shareholders own more than
The JCT’s estimate includes a repeal of the check-the-box
80% of the shares. There are also penalties if shareholders
and look-through rules that limit taxation of certain easily
own more than 60% of the shares. The President’s proposal,
shifted income, called Subpart F income. S. 725 and H.R.
S. 991, S. 714, and H.R. 1785 would treat these new firms
1786 include provisions that would address these rules.
as U.S. firms if the U.S. shareholders have more than 50%
ownership or if they are managed in the United States. S.
Repeal of Deduction for Foreign Derived Intangible
991 would also tighten the rules affecting treaty shopping
Income (FDII)
(going through a country that has a treaty with the United
When GILTI was enacted, a provision was included
States). See CRS Report R40468, Tax Treaty Legislation in
allowing a deduction aimed at equalizing the treatment of
the 111th Congress: Explanation and Economic Analysis,
intangibles located abroad and in the United States, referred
by Donald J. Marples, for an explanation of the treaty-
to as foreign derived intangible income deduction, or FDII.
shopping issue. The JCT estimates that the provisions for S.
FDII was based on the share of exports and a deduction for
991 would increase revenue by $23.5 billion from FY2021
10% of tangible income. S. 714, H.R. 1785, S. 991, and the
to FY3031.
Biden Administration proposal would eliminate FDII. As
with GILTI, one motivation is due to concerns that the
Dual Capacity Shareholder
deduction for tangible assets might discourage investment
S. 991, S. 725, and H.R. 1786 would restrict foreign tax
in the United States because an increase in domestic
credits for taxes paid where there is an income tax that is
investment reduces the FDII deduction. The JCT estimates
paid in part to receive a benefit (i.e., the firm is paying a tax
that the repeal of FDII would increase revenue by $224
in a dual capacity) to the amount that would be paid if the
billion from FY2021 to FY2031.
taxpayer were not a dual-capacity taxpayer. This provision
typically relates to taxes being substituted for royalties in
Limit Interest Expense Deduction for
oil-producing countries. The JCT estimates that this change
Multinationals
would increase revenue by $13 billion from FY2021 to
S. 714, H.R. 1785, and S. 991 propose to allocate interest
FY2031.
deductions among countries based on their share of income.
This provision is aimed at preventing firms from allocating
Other International Provisions
interest deductions to the United States and out of low-
S. 725 and H.R. 1785 would address other areas of
taxed countries. The JCT estimates that this provision
international corporate taxation. The proposals would treat
would increase revenue by $40 billion from FY2021 to
swap payments to foreign corporations as sourced to the
FY2031.
payor rather than the payee, which would subject swap
payments sent abroad to U.S. tax. (Swaps are contracts
Modifying the Base Erosion and Anti-Abuse Tax
which allow one to take a financial position based on
(BEAT)
expected future prices, such as currency prices.) The
BEAT was an alternative tax enacted in 2017 under the
proposals would require firms who file SEC 10-K reports to
TCJA. It requires corporations to add certain payments
disclose actual U.S. federal, state and local, and foreign
between related foreign firms and then taxes them at a 10%
taxes paid as well as country-by-country information on
rate; it is paid if higher than the regular tax. BEAT has
revenues, taxes, assets, employees, earnings, and profits.
fewer credits than the regular tax. S. 991 would accelerate
The proposals would charge interest on installment
the tax rate increase (the 10% rate is scheduled to increase
payments for the transition tax on accumulated deferred
to 12.5% after 2025) and would eliminate the credits, which
foreign earnings (this provision is also included in S. 991).
are also scheduled to expire. It would also reduce the BEAT
The proposals would include foreign oil-related income in
exemption from $500 million to $25 million and eliminate
Subpart F. The proposals would tax the gain on the transfer
an exemption based on the share of base erosion payments
of an intangible asset to a foreign partnership. Generally,
in total payments. It would exclude certain payments that
exchanges of assets in return for a share of the partnership
are included as U.S. income by the foreign party. The
would not be taxed. Other sections of S. 725 and H.R. 1785
President’s proposal would replace BEAT with a tax at
are associated with international tax administration and
higher rates that is focused on payments to lower-tax
enforcement.
jurisdictions.
Donald J. Marples, Specialist in Public Finance
According to the JCT, this provision would increase
Jane G. Gravelle, Senior Specialist in Economic Policy
revenue by $29 billion. Based on the pattern of estimates,
about $11 billion of that amount would be from the
IF11809
https://crsreports.congress.gov
Trends and Proposals for Corporate Tax Revenue
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https://crsreports.congress.gov | IF11809 · VERSION 1 · NEW