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Updated November 12, 2021
Trends and Proposals for Corporate Tax Revenue
Since the mid-1960s, U.S. corporate tax revenues have
Better Act (BBBA; H.R. 5376) would raise around $800
declined, relative to the size of the economy. Corporate tax
billion in corporate taxes in FY2022-FY2031.
revenue as a percentage of gross domestic product (GDP),
which was 3.9% in 1965, has fallen to approximately 1.0%
Raising the Corporate Tax Rate
in 2020. The decline in corporate tax revenue since 1965 is
The corporate tax rate is currently 21%, levied as a flat rate,
due to several factors. Average tax rates have declined,
reduced from a top marginal rate of 35% before 2018 by the
primarily due to reductions in the statutory rate and changes
2017 tax law commonly known as the “Tax Cuts and Jobs
in depreciation. The corporate tax base has also been
Act” (TCJA; P.L. 115-97). President Biden has proposed an
reduced through declining profitability (return on assets),
increase to 28% with a revenue gain of $858 billion for
increased use of the pass-through organizational form for
FY2022-FY2031. Senator Sanders has proposed (S. 991) a
businesses, and international profit shifting.
graduated corporate rate with most corporate income taxed
at 35%. President Biden has also proposed an alternative
Whereas U.S. corporate tax revenue has decreased,
minimum tax based on financial or “book” income for
corporate tax revenue in other Organization for Economic
corporations with more than $2 billion in earnings. The
Co-operation and Development (OECD) member countries
BBBA would impose a minimum tax of 15% on firms with
has, on average, increased. Since 1965, average corporate
$1 billion or more in earnings. Senator Warren’s proposal
tax revenue collected by OECD countries has increased
(S. 2680) would impose a minimum tax on corporations
from 2.1% of GDP to 3.1% of GDP in 2018 (see Figure 1).
with over $100 million in earnings.
Figure 1. Corporate Tax Revenue, as a Percentage of
GDP, 1965-2018
Increasing the Minimum Tax on Foreign Source
Income (GILTI)
Several bills in the 117th Congress, including S. 20
(Klobuchar), S. 714 (Whitehouse), H.R. 1785 (Doggett), S.
991 (Sanders), and the BBBA 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 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%, leading to a tax rate of 10.5% (13.125% after 2025).
tax-on-corporate-profits.htm, downloaded March 31, 2021.
Foreign oil extraction income is excluded and not subject to
Note: Tax on corporate profits includes taxes levied by all levels of
any U.S. tax.
government.
Current law allows credits for foreign taxes paid; the credits
Figure 1 also shows that the United States collected 1.8
are limited to U.S. taxes due on foreign-source income, but
times as much corporate tax revenue compared to the
are imposed on an overall basis across countries. This
OECD average in 1965. Since 1981, however, U.S.
treatment allows for the use of credited taxes paid in high-
corporate tax revenue as a percentage of GDP has been less
tax countries to offset U.S. income tax due in low-tax
than the OECD average (which includes the United States).
countries. For GILTI, the credit is limited to 80% of foreign
In 2018, OECD average corporate tax revenue as a
taxes paid.
percentage of GDP was 3.1 times U.S. corporate tax
The Biden Administration’s budget and four bills in the
revenue as a percentage of GDP.
117th Congress—S. 20, S. 714, H.R. 1785, and S. 991—
Corporate Tax Proposals
would eliminate the deemed deduction for tangible assets
and tax GILTI at 21% (35% in S. 991). The BBBA would
President Biden’s budget proposes an increase in the
amount of revenue raised by the corporate tax system by
reduce the deemed deduction to 5% and tax GILTI at
15.051%. In all of the proposals, the foreign tax credit
about $2 trillion over the next 10 years. Several legislative
would be limited by country, and most proposals would
proposals would increase corporate taxes, in most cases by
altering the international tax structure. The Ways and
increase the GILTI credit to 100% (95% in the BBBA).
Foreign oil extraction income is included in GILTI in both
Means Committee recommendations in the Build Back
BBBA and the Administration proposal.
https://crsreports.congress.gov
Trends and Proposals for Corporate Tax Revenue
A draft proposal by Senators Wyden, Brown, and Warner
Anti-Inversion and Treaty-Shopping Rules
would modify GILTI by eliminating the 10% deemed
Under current law, firms that invert (move their
deduction for tangible assets, exempt income in high-tax
headquarters abroad) by merging with foreign firms are
countries, and impose a per country limit on foreign tax
treated as U.S. firms for tax purposes if the U.S.
credits for the remaining countries. The GILTI deduction
shareholders own more than 80% of the shares. There are
rate and allowable foreign tax credits are not specified.
also penalties if shareholders own more than 60% of the
shares. The President’s proposal, S. 991, S. 714, and H.R.
These proposals appear to be motivated, in part, by
1785, as well as two more narrowly focused bills, S. 1501
concerns that the exemption for tangible income might
(Durbin) and H.R. 2976 (Doggett), would treat these new
encourage the movement of investment abroad.
firms as U.S. firms if the U.S. shareholders have more than
Repeal of Deduction for Foreign-Derived Intangible
50% ownership or if they are managed in the United States.
Income
S. 991 would also tighten the rules affecting treaty shopping
(going through a country that has a treaty with the United
In 2017, the TCJA created the foreign-derived intangible
States). See CRS Report R40468, Tax Treaty Legislation in
income (FDII) deduction, aimed at equalizing the treatment
the 111th Congress: Explanation and Economic Analysis,
of intangibles located abroad and in the United States. FDII
by Donald J. Marples for an explanation of the treaty-
is based on a firm’s share of exports and a deemed
shopping issue.
deduction for 10% of tangible income, with the remaining
income allowed a deduction of 37.5% (21.875% after
Dual Capacity Shareholder
2025), leading to a tax rate of 13.125% (16.4% after 2025).
S. 991, S. 725, H.R. 1786, and the BBBA would restrict
S. 714, H.R. 1785, S. 991, and the Biden Administration
foreign tax credits for taxes paid where an income tax is
proposal would eliminate FDII. The BBBA would tax FDII
paid in part to receive a benefit (i.e., the firm is paying a tax
at 20.7%. The Biden proposal would use the revenue to
in a dual capacity) to the amount that would be paid if the
provide additional incentives for research. The Wyden,
taxpayer were not a dual-capacity taxpayer. This provision
Brown, and Warner draft would base the deduction on a
typically relates to taxes being substituted for royalties in
percentage of research and human training costs in the
oil-producing countries.
United States. As with GILTI, one motivation for these
proposals is due to concerns that the deduction for tangible
Other International Provisions
assets might discourage investment in the United States.
S. 725, H.R. 1786, S. 991, and the BBBA would address
Limit Interest Expense Deduction for
other areas of international corporate taxation. Other
Multinationals
sections of S. 725 and H.R. 1786 are associated with
international tax administration and enforcement. The
S. 714, H.R. 1785, S. 991, the BBBA, and the
BBBA also contains other international provisions,
Administration propose to allocate interest deductions
including limiting the deduction for foreign dividends for
among countries based on their share of income. This
U.S. shareholders with a 10% ownership to dividends from
provision is aimed at preventing firms from allocating
controlled foreign corporations (CFCs) and making changes
interest deductions to the United States and out of low-
to limit certain “downward attribution” rules that create
taxed countries.
CFC status for some foreign-related firms and subject them
Modifying the Base Erosion and Anti-Abuse Tax
to GILTI. The BBBA and the Wyden, Brown, and Warner
draft would restrict losses in one country from offsetting
The base erosion and anti-abuse tax (BEAT), enacted in
income in another and tighten the treatment of Subpart F
2017, requires corporations to add certain payments
income, a regime that applies full taxation to certain easily
between related foreign firms and then taxes them at a 10%
shifted income.
rate (12.5% after 2025) if higher than the regular tax. BEAT
does not allow tax credits except for some temporary
Other Corporate Proposals
domestic credits (no foreign tax credits). S. 991 would
The BBBA also contains some other corporate proposals
accelerate the tax rate increase and eliminate the temporary
not related to international taxes, including imposing a 1%
domestic credits. The BBBA would increase the rate
excise tax on share repurchases, imposing taxes in certain
(eventually to 18%), allow all credits, and add certain
types of reorganizations, and expanding the definition of
payments for goods sold. The President’s proposal would
“trade or business” for determining common control of
replace BEAT with a disallowance of deductions for
firms to include research and investment.
payments to foreign entities in lower-tax jurisdictions. The
Wyden, Brown, and Warner draft would add a higher tier of
tax rates to the base erosion amounts and allow full
Donald J. Marples, Specialist in Public Finance
domestic credits.
Jane G. Gravelle, Senior Specialist in Economic Policy
IF11809
https://crsreports.congress.gov
Trends and Proposals for Corporate Tax Revenue
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https://crsreports.congress.gov | IF11809 · VERSION 7 · UPDATED