link to page 1 link to page 1
Updated June 21, 2021
Trends and Proposals for Corporate Tax Revenue
Since the mid-1960s, U.S. corporate tax revenues have
about $2 trillion over the next 10 years. Several legislative
declined, relative to the size of the economy. Corporate tax
proposals in the 117th Congress would increase corporate
revenue as a percentage of gross domestic product (GDP),
taxes, in most cases by altering the international tax
which was 3.9% in 1965, has fallen to approximately 1.0%
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 an
businesses, and international profit shifting.
increase to 28% with a revenue gain of $858 billion for
FY2022-FY2031. Senator Sanders has proposed (S. 991) a
Whereas U.S. corporate tax revenue has decreased,
graduated corporate rate with most corporate income taxed
corporate tax revenue in other Organisation for Economic
at 35%. President Biden has also proposed an alternative
Co-operation and Development (OECD) member countries
minimum tax based on financial or “book” income for
has, on average, increased. Since 1965, average corporate
corporations with more than $2 billion in earnings.
tax revenue collected by OECD countries has increased
from 2.1% of GDP to 3.1% of GDP in 2018 (see Figure 1).
Increasing the Minimum Tax on Foreign Source
OECD data indicate that U.S. corporate tax revenue
Income (GILTI)
(including corporate tax revenue collected by state and local
Several bills, including S. 20 (Klobuchar), S. 714
governments) fell from 3.9% to 1.0% during the same time.
(Whitehouse), H.R. 1785 (Doggett), and S. 991 (Sanders)
would increase the minimum tax on foreign source income,
Figure 1. Corporate Tax Revenue, as a Percentage of
known as the tax on Global Intangible Low Taxed Income,
GDP, 1965-2018
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 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 21%.
The U.S. international tax system allows for credits for
foreign taxes paid. Credits are limited to U.S. taxes due on
foreign-source income, but imposed on an overall basis
across countries. This allows for “cross-crediting,” or the
use of credited taxes paid in high-tax countries to offset
Source: OECD Tax on Corporate Profits, https://data.oecd.org/tax/
U.S. income tax due in low-tax countries. For GILTI, the
tax-on-corporate-profits.htm, downloaded March 31, 2021.
credit is limited to up to 80% of foreign taxes are paid.
Note: Tax on corporate profits includes taxes levied by al levels of
government.
The Biden Administration budget proposals and four bills
in the 117th Congress—S. 20, S. 714, H.R. 1785, and S.
Figure 1 also shows that the United States collected 1.8
991—would make GILTI fully taxable by eliminating the
times as much corporate tax revenue compared to the
deduction for tangible investment and eliminating the 50%
OECD average in 1965. Since 1981, however, U.S.
deduction. All but S. 991 would impose a 21% rate (the
corporate tax revenue as a percentage of GDP has been less
current-law rate); S. 991 would impose a rate of 35%. The
than the OECD average (which includes the United States).
Biden Administration plan would allow a deduction to set
In 2018, OECD average corporate tax revenue as a
the GILTI tax rate at 21% rather than 28%.
percentage of GDP was 3.1 times U.S. corporate tax
revenue as a percentage of GDP.
These proposals appear to be motivated, in part, by
concerns that the exemption for tangible income might
Corporate Tax Proposals
encourage the movement of investment abroad. Some
President Biden’s budget proposes an increase in the
proposals would increase the credit amount for GILTI to
amount of revenue raised by the corporate tax system by
100% (S. 714, H.R. 1785, and S. 991, but not S. 20 or the
https://crsreports.congress.gov
Trends and Proposals for Corporate Tax Revenue
Administration proposal) and impose a per-country limit for
to add certain payments that firms elect to capitalize to
all foreign tax credits . The Biden proposal would tax
BEAT.
foreign oil income at the 21% rate, whereas S. 714, H.R.
1785, and S. 991 would tax all foreign oil income at the full
The President’s proposal would replace BEAT with a
rate.
disallowance of deductions for payments to foreign entities
for payments to lower-tax jurisdictions. This change is
The Joint Committee on Taxation (JCT) has estimated that
estimated to raise revenues by $309 billion over 10 years.
the changes to GILTI in S. 991 would increase revenue by
$692 billion from FY2021 to FY2031 with a 21% tax rate.
Anti-Inversion and Treaty-Shopping Rules
The JCT’s estimate includes a repeal of the check-the-box
Under current law, firms that attempt to invert (move their
and look-through rules that limit taxation of certain easily
headquarters abroad) by merging with foreign firms are
shifted income, called Subpart F income. S. 725 and H.R.
treated as U.S. firms if the U.S. shareholders own more than
1786 include provisions that would address these rules.
80% of the shares. There are also penalties if shareholders
own more than 60% of the shares. The President’s proposal,
Repeal of Deduction for Foreign Derived Intangible
S. 991, S. 714, and H.R. 1785, as well as two more
Income (FDII)
narrowly focused bills, S. 1501 (Durbin), and H.R. 2976
When GILTI was enacted, a provision was included
(Doggett) would treat these new firms as U.S. firms if the
allowing a deduction aimed at equalizing the treatment of
U.S. shareholders have more than 50% ownership or if they
intangibles located abroad and in the United States, referred
are managed in the United States. S. 991 would also tighten
to as foreign derived intangible income deduction, or FDII.
the rules affecting treaty shopping (going through a country
FDII was based on the share of exports and a deduction for
that has a treaty with the United States). See CRS Report
10% of tangible income. S. 714, H.R. 1785, S. 991, and the
R40468, Tax Treaty Legislation in the 111th Congress:
Biden Administration proposal would eliminate FDII. The
Explanation and Economic Analysis, by Donald J. Marples,
Biden proposal would use the revenue to provide additional
for an explanation of the treaty-shopping issue. The JCT
incentives for research. As with GILTI, one motivation is
estimates that the provisions for S. 991 would increase
due to concerns that the deduction for tangible assets might
revenue by $23.5 billion from FY2021 to FY3031.
discourage investment in the United States because an
increase in domestic investment reduces the FDII
Dual Capacity Shareholder
deduction. The JCT estimates that the repeal of FDII would
S. 991, S. 725, and H.R. 1786 would restrict foreign tax
increase revenue by $224 billion from FY2021 to FY2031.
credits for taxes paid where an income tax is paid in part to
receive a benefit (i.e., the firm is paying a tax in a dual
Limit Interest Expense Deduction for
capacity) to the amount that would be paid if the taxpayer
Multinationals
were not a dual-capacity taxpayer. This provision typically
S. 714, H.R. 1785, S. 991, and the Administration propose
relates to taxes being substituted for royalties in oil-
to allocate interest deductions among countries based on
producing countries. The JCT estimates this change would
their share of income. This provision is aimed at preventing
increase revenue by $13 billion from FY2021 to FY2031.
firms from allocating interest deductions to the United
States and out of low-taxed countries. The JCT estimates
Other International Provisions
that this provision would increase revenue by $40 billion
S. 725 and H.R. 1786 would address other areas of
from FY2021 to FY2031.
international corporate taxation. The proposals would treat
swap payments to foreign corporations as sourced to the
Modifying the Base Erosion and Anti-Abuse Tax
payor rather than the payee, which would subject swap
(BEAT)
payments sent abroad to U.S. tax. (Swaps are contracts
BEAT was an alternative tax enacted in 2017 under the
which allow one to take a financial position based on
TCJA. It requires corporations to add certain payments
expected future prices, such as currency prices.) They
between related foreign firms and then taxes them at a 10%
would require firms who file SEC 10-K reports to disclose
rate; it is paid if higher than the regular tax. BEAT has
actual U.S. federal, state and local, and foreign taxes paid as
fewer credits than the regular tax. S. 991 would accelerate
well as country-by-country information on revenues, taxes,
the tax rate increase (the 10% rate is scheduled to increase
assets, employees, earnings, and profits. The proposals
to 12.5% after 2025) and would eliminate the credits, which
would charge interest on installment payments for the
are also scheduled to expire. It would also reduce the BEAT
transition tax on accumulated deferred foreign earnings (a
exemption from $500 million to $25 million and eliminate
provision also included in S. 991). The proposals would
an exemption based on the share of base erosion payments
include foreign oil-related income in Subpart F. They
in total payments. It would exclude certain payments that
would also tax the gain on the transfer of an intangible asset
are included as U.S. income by the foreign party. According
to a foreign partnership. Generally, exchanges of assets in
to the JCT, this provision would increase revenue by $29
return for a share of the partnership would not be taxed.
billion. Based on the pattern of estimates, about $11 billion
Other sections of S. 725 and H.R. 1785 are associated with
of that amount would be from the acceleration provisions.
international tax administration and enforcement.
There are also BEAT provisions in S. 725 and H.R. 1786,
but they do not accelerate the rate change and elimination
Donald J. Marples, Specialist in Public Finance
of credits or remove certain payments and they reduce the
Jane G. Gravelle, Senior Specialist in Economic Policy
exemption to $100 million. These bills include provisions
IF11809
https://crsreports.congress.gov
Trends and Proposals for Corporate Tax Revenue
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11809 · VERSION 3 · UPDATED