The Department of Numbers has an interesting set of charts looking at Tax Revenue as a Fraction of GDP.

You should go to Dept of #s to read the commentary explaining the hows and whys, but meanwhile, see these charts — I added a  (ballpark) mean to both series:


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Total US Tax Revenue as a Percentage of GDP (~16.5%)

US Tax Revenue as a Fraction of GDP by Component

(Corporate Tax falls from >4% to ~2%)

Category: Data Analysis, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

36 Responses to “Corporate Taxes as Percentage of GDP”

  1. njdoc says:

    It seems as though the social security tax is making up for the shortfall in corporate tax rate. Is my reading of the data correct?

  2. b_thunder says:

    Corporate tax – lowest % ever
    Income tax – near the all-time low %
    Soc. Security – highest % ever!

    No wonder Buffett pays 17% tax, and a person who makes a minimum wage pays 12.4% Soc. Sec.
    No wonder when combined with personal income tax, average american pays much harder % in taxes than billionaires!

    And since there’s no dedicated personal accounts where soc. sec. contribution flow, because they go to the general revenues fund, let’s not even start the partisan “income taxes are different from payroll taxes, and rich pay too much in taxes” b.s.

    What i would do is to replace Soc Sec tax with a VAT, perhaps that would even thing a bit:

    http://finance.yahoo.com/family-home/article/110258/us-economy-is-increasingly-tied-to-the-rich

    top 5% make up 37% of all consumer spending? Great! Let’s have a VAT, and a solvent Soc. Sec. system

  3. njdoc says:

    I believe that FICA is split between employer and employee such that each pays 6.2% up to the first $102,000 of gross compensation for the Social Security portion, then they split the Medicare portion with each paying 1.45% of gross compensation with no limits. Any CPAs?

  4. johnnywalker says:

    Back of the envelope calculation:

    If corporate taxes decrease from 4% of GDP to 2% of GDP, that amounts to a decrease of approximately $280 billion in revenue for 2010, based on the 2010 GDP of approximately $14 trillion. This is a little more than 20% of the projected budget deficit of $1.2 trillion.

    It would be interesting to calculate how much less the national debt would be if we had maintained the corporate rate at 4% of GDP throughout the 60 years of the chart (assuming the same level of spending during that period).

    ~~~

    BR: We have debated these issues in the past. The challenge is when you change the tax rate / deductions / exemptions / subsidies, you change the corporate behavior — we dont know what the GDP would have looked like after those (hypothetical) changes

  5. mitchcalderwood says:

    It’s even more dramatic if you look at corporate taxes as a percentage of total tax receipts.

  6. wally says:

    “I believe that FICA is split between employer and employee…”

    Call it what you will, it still obviously comes out of personal income since: no job, no tax.

  7. NoKidding says:

    Since government spends 100 pct (or more) of collections, and government spending is a component (30 pct-ish) of GDP, wouldn’t the technically correct way to present the data be collections vs. GDP ex-government portion?

    That method would scale numbers to the real economy, and also factor in tax revenue (GDP) borrowed from future receipts.

  8. NoKidding says:

    “It would be interesting to calculate how much less the national debt would be if we had maintained the corporate rate at 4% of GDP throughout the 60 years of the chart (assuming the same level of spending during that period).”

    I suspect we would then be asking how much less the national debt would be if we had maintained the corporate rate at 6% of GDP throughout the 60 years of the chart.

  9. b_thunder says:

    njdoc ,

    Yes, FICO is split 50/50 between employer/employee, but what difference does it make?

    For those who make under $100K, if there was no FICO they’d get to keep “their” half, and their employers would have been able to pass along “their half” to their employees, which would increase the take-home (and taxable income) by 6.2%.

    So, you’d get to keep “your” 6.2%, and the employer ‘s 6.2%. Total: 12.4% raise in pay (before income tax)

  10. johnnywalker says:

    NoKidding,

    My suggested calculation was based on an eyeball average of 4% for 1950-1970 versus an eyeball average of 2% for 1990-2010. I’m asking what would happen if you extrapolate the 4% average over the 6 decades. I wasn’t implying that corporate taxes be raised above the 4% level; that’s a separate debate.

    I’m old enough to remember the 1950-1970 period, and unless my memory is failing me, it was a pretty good time for the US.

  11. Mike Radigan says:

    Linky to dept of numbers no worky.

    ~~~

    BR: Doh! Fixed

  12. mbelardes says:

    Other good charts would be annual tax revenue as a percentage of total national debt, as a percentage of annual debt payments, and as a percentage of annual interest accrual.

    Then compare those figures to the growth in tax revenue and GDP.

    I’ve tinkered with those figures and it is understandable why people freak out regarding the deficit.

  13. Dow says:

    Department of Numbers looked at the chart and saw peaks and troughs roughly in parallel to recessions. I looked at the chart and saw bubbles.

  14. johnnywalker says:

    Another quick calculation:

    Comparison of revenues from corporate taxes from 4% of GDP over 6 decades minus actual rate (% 0f GDP) over 6 decades is approximately $6.5 trillion. That is roughly half of the total national debt of $12 trillion. Thus, had we maintained our spending at the actual levels, and collected corporate taxes at the 1950-1970 level, our total national debt would be half of what it is now.

    Methods:
    GDP data from http://www.usgovernmentspending.com
    National debt data from http://www.treasurydirect.gov
    Percentages of GDP collected as corporate taxes estimated from graph. An average for each decade was estimated and rounded to nearest 0.5%.

    Check my numbers and let me know if I miscalculated. If I’m correct, the numbers are striking.

  15. ACS says:

    If corporate taxes are raised, how much of that extra expense will come out of profits and how much will come out of higher prices? Do corporations really pay taxes or just collect them?

  16. BrendanE says:

    Corporate tax rate looks flat from early 80′s (Reagan-era tax breaks) to present. Trend line is misleading.

    ~~~

    BR: The general path of the line is from the upper left to the lower right.

  17. cheapstockssnow says:

    Is their anyone on this site using their head. The point of the above charts should be that the government can change where they tax but they cannot effectively wring more out of the economy on a consistent basis than about 16.5% of GDP. Taxes can influence the growth of GDP and its absolute level. Corporate taxes are a closet tax on goods produced, in other words, corporate taxes are a tax on individuals as they pay higher prices for the goods they purchase; therefore, they are pass through taxes. Corporate taxes then act as a reverse tariff in effect. Corporate Tax rates should be O%.

    Income tax rates are relevant in the short term as they affect behavior due to expectations for a change in the rates from current. The absolute level of rates provides for an interesting philosophical debate, but any consistent rate (or group of marginal tax rates) will lend itself to economic activity over time that adjusts for the rates (hence the rather sticky nature of taxes as a % of GDP). Again, said differently, higher tax rates will ipso facto depress GDP and lower rates will produce faster GDP growth rates over time. Any change from current rates, or expectation thereof will also depress or accelerate growth in the short run. Ultimately, personal tax rates should above all be kept as permanent as possible to foster both stability of expectations and a more consistent rate of GDP growth.

    All those with a social agenda and no appreciation for economics should stop commenting on that for which they have nothing to offer.

  18. wally says:

    “All those with a social agenda and no appreciation for economics should stop commenting on that for which they have nothing to offer.”

    Well, where’s the fun in that????

  19. Marc P says:

    @NoKidding:
    “Since government spends 100 pct (or more) of collections,
    and government spending is a component (30 pct-ish) of GDP,
    wouldn’t the technically correct way to present the data be
    collections vs. GDP ex-government portion?”

    Yes. The vast increase in federal government expenditures masks the additional tax burden when measuring taxes against GDP. You’ve hit on a major reason why this chart is misleading. We need to separate the “real” portion of the economy from the artificial portion (gov’t borrowing and spending). It is humorous – and sad – to watch the gov’t so focused on GDP numbers that it simply borrowed and spent (or printed and spent) until the GDP went back up to the GDP number it wanted, and then declared the recovery in progress.

    @ACS:
    “If corporate taxes are raised, how much of that extra expense
    will come out of profits and how much will come out of higher
    prices? Do corporations really pay taxes or just collect them?”

    I believe the data show that corporations merely collect taxes and pass them on in higher prices. Since some of the buyers are in foreign countries, a small portion of the total U.S. tax burden is paid by foreigners. Eliminating the corporate income tax and creating a small tariff on exported goods would get the same results, theoretically. Eliminating the corporate income tax would save our country the economic waste of the 40%-50% collection cost of corporate taxes (i.e., tax planning and compliance).

    BR, the charts for taxes as a percentage of GDP are interesting, but what would be more interesting is seeing taxes as a percentage of household income or per capita income. The tax burden wouldn’t look so consistent or benign. The average household income is pretty much flat (or down if we use true CPI numbers) over the last decade, but federal government expenditures have doubled (or more, if we count the backdoor Fed handout/money printing).

  20. denaliguide says:

    No one savvy, with a hint of an appreciation of history, can reasonably expect this to cycle on and on, without crushing half those in its path.

    Truly big govt has proven its truly a big problem including the truly big fibs it tells, so maybe a little Tactical Introduction to trends no one talks about, while the WSJ tells us not to worry about ‘deflation’,

    you can see here,………………………………..http://denaliguidesummit.blogspot.com/……………………….

    with a few interesting trends here on the back-up docs too……. http://tiny.cc/gtkab

    truly I dont think big govt is good for anyone but big govt……….. DG

  21. napster says:

    According to b_thunder, and his quick smirky comments:

    And since there’s no dedicated personal accounts where soc. sec. contribution flow, because they go to the general revenues fund, let’s not even start the partisan “income taxes are different from payroll taxes, and rich pay too much in taxes” b.s.

    What i would do is to replace Soc Sec tax with a VAT, perhaps that would even thing a bit:

    top 5% make up 37% of all consumer spending? Great! Let’s have a VAT, and a solvent Soc. Sec. system

    Yep, that’s right there is no dedicated personal accounts, but there is a dedicated big fat government account. The money does not go to the general revenues fund. The money from social security goes directly to the payment of current social security drawdowns, and the surplus purchases treasury notes as a investment against the rise of future expenses. The auditors might count the social security surplus as assets when the government accounts are tallied every fiscal cycle, but that does not mean the Social Security Funds are in the General Revenues Fund.

    And Social Security is solvent. Period.

    Stop with this nonsense. It is wrong. It is not true.

  22. Greg0658 says:

    since msm (little letters on purpose) is ragging on the First Lady’s trip to Spain & the cost of the Secret Service & transporation costs .. how about a breakdown of work-cation and wardrobe perks for corporate heads as a percentage of …. I mean it seems time for a family to be able to write off expenses as if they are a business too …. and hire a friend for anything needed done to offset or reduce to zero taxes to Uncle Sam

  23. johnnywalker says:

    Everyone agrees that corporate tax is a “pass-through” tax, and that increasing corporate tax will tend to increase the price that consumers pay for the goods produced. Turn that truism around, however, and look at recent history. As the chart shows, corporate tax has been declining for the last 6 decades. Where have the savings from that decline in tax rate gone? I’d like to see the numbers, but would also like to see them in context of their relationship to 1) the increase in national debt, 2) the growing disparity between the top 5% and the rest of us in terms of income and net worth.

    BTW, if I have a social agenda, it is that the Government should function in a more utilitarian fashion, to maximize the benefits for the maximum number of people.

  24. napster says:

    And furthermore, it is so nice that b_thunder is “not starting anything partisan”, despite his untruthful statements to the contrary.

  25. Ambiance says:

    More than anything I think this shows the enormous growth in social security taxes since it’s inception. As pointed out by cheapsstocksnow the government can basically maintain a tax rate of between 16.5-17% before people either vote for lower taxes or an economic event forces them to be lowered. The FICA and medicare taxes have gone up dramatically and are simply eating a higher fraction of that number. Likewise we’ve seen a huge rise in non-wage benefits (largely health insurance, savings plans) since the late 70′s and early 80′s, which qualify for large deductions. It’d be interesting to see the decline in corporate tax revenues contrasted with deductions, I suspect this is the primary cause for this trend.

  26. willid3 says:

    johnnywalker Says:
    August 9th, 2010 at 4:01 pm

    Everyone agrees that corporate tax is a “pass-through” tax, and that increasing corporate tax will tend to increase the price that consumers pay for the goods produced. Turn that truism around, however, and look

    i don’t.
    i seriously doubt that business would ever in any remote way pass such a cut to their customers. its like the pipe dream that eliminating SS tax would mean a pay raise for employees. never ever going to happen.
    ever. it would all go to the corporate bottom line. same as eliminating benefits would ever end up in employee pockets. not going to happen either.
    it only happens when they have to compete with others. and right now they don’t have to compete with any one for employees.

  27. dougc says:

    If you plot PAC political contributions vs corporate taxes paid, it will all become clear.

  28. willid3 says:

    if i remember correctly there was a corporate giveaway in 2005 to corporations to bring home profits from over seas. not sure but i thought it was a one time deal. was suppose to add jobs. didnt

  29. DL says:

    “Corporate taxes are a closet tax on goods produced, in other words, corporate taxes are a tax on individuals as they pay higher prices for the goods they purchase; therefore, they are pass through taxes. Corporate taxes then act as a reverse tariff in effect”.

    . . . . . . . . . . . . .

    In the case of multinational corporations, the analysis is probably a little more complicated. For example, a company might do R&D in one country, manufacture in a second country and sell in a third country. Multinational companies tend to exaggerate losses in the high tax countries, and overstate profits in the low-tax countries. Also, the amount of hiring done in one country versus another will depend in part on the relative tax burden.

  30. ACS says:

    SS is a Ponzi Scheme, the only thing that makes it “solvent” is the government’s power of coercion.

  31. johnnywalker says:

    cheapstocksnow says, “Again, said differently, higher tax rates will ipso facto depress GDP and lower rates will produce faster GDP growth rates over time.” In this case, the hypothesis is not supported by the numerical data.

    I calculated the average year to year increases in GDP for the 6 decades of 1950 to 2010. The two decades with the lowest average year-to-year GDP increases were 1991-2000 and 2001-2010. These correspond to the decades with the lowest corporate tax rates as % of GDP.

  32. philipat says:

    The Department of numbers? Is that within the Miinsirty of Magic?

    Only for Muggles, I assume?

  33. cheapstockssnow says:

    “I calculated the average year to year increases in GDP for the 6 decades of 1950 to 2010. The two decades with the lowest average year-to-year GDP increases were 1991-2000 and 2001-2010. These correspond to the decades with the lowest corporate tax rates as % of GDP.”

    Might that be bc GDP was depressed? Wow, the lack of intuitiveness here is depressing. Good work on crunching those numbers.

  34. curious 1 says:

    If corporate taxes are simply a pass through tax on consumers, then why keep them artificially low?

    Corporations stand between the IRS and the tiny fragment of our society composed of the super wealthy that mostly utilize corporations to accumulate and store their wealth at a great disadvantage to individuals who cannot afford to be large stakeholders in such corporations, to conceal and reduce their cost of consuming high end goods and services, and to evade personal income taxation.

    Why not go back to basics by forcing corporations to be restricted to activities directly related to their corporate charters, removing the perpetual authorizations that corporations enjoy and replacing them with defined terms for renewal, undoing the personification of corporations (especially their shameful protections under the Bill Of Rights), and having the IRS and the states disallow business deductions for yachts, season tickets to sporting events, travel, meals, or costs to the corporation that do not have a direct bearing on the accomplishment of the corporate charter.

    Certainly, attending Yankee games, traveling to China and staying in a 5 star hotel while there has no direct bearing on manufacturing pens, except that those activities are counter to the actual consumers interests and counter to the benefit of Americans.

    Corporations have left an unmistakable trail in history showing their inclination to realize higher profits (which are mostly realized by a minority of Americans or shareholders) and executive compensation rather than to benefit consumers (representing perhaps a majority of Americans) by passing through all the savings of exporting manufacturing to their consumers.

    E.G.

    Corporation A (a pen manufacturer) buys a yacht from corporation B, then corporation A allows its owners, executives, and guests to “consume” such yacht under the guise of business activities (which have nothing to do with pen manufacturing, in actuality), then pass through corporation A’s cost for purchasing and maintaining this yacht as a corporate business expense, reducing corporation A’s corporate tax liability, and ultimately passing corporation A’s cost of ownership of said yacht onto its customers in a per unit added cost to consumers.

    This is an example of a corporation buying goods and services unrelated to its corporate charter, providing the use of such goods and services to its owners, executives, and guests, thereby skirting personal income tax laws for those persons and concealing the aggregation of unintended wealth (based on that corporations charter) for the corporations owners, and passing through the cost of corporate taxation and such goods and services to consumers of that corporation’s goods.

    This corporation unfairly increase consumers costs and skirts government personal income taxation.

    Arguably, these accomplishments are more important to that corporation’s owners and executives than performing the task that the corporate charter has authorized them to partake in.

    At least tell it like it is.

    Corporate welfare for the super rich at the expense of the common man, courtesy of the United States and the states governments.

  35. johnnywalker says:

    My empirical observation, based on the numerical data, is limited to this: low corporate taxes do not necessarily, ipso facto, correlate with faster growth in GDP.

    The determination of GDP growth is obviously multifactorial. My guess is that if you asked 10 economists about the single best way to stimulate GDP growth you’d probably get 10 different answers.

  36. mrknowitall says:

    To all,

    One important point has been missed here, it seems to me. These “super-rich” corporate gougers do not have to pay taxes to fund our largess in this country. They have the wealth and means to move their dollars wherever they want. Make it too onerous here and they can just leave, if they haven’t already. 19 out of 20 people, their future customers, live somewhere else. Their eyes are already looking at new lovers as it is. Those “greedy bastards” may not want to stay around here anyway. Maybe we should be a little nicer to them and they will consider keeping their money and their jobs and their tax revenue here. There is no “mandate” in this day and age for them to pay just because we demand it. Love’em or hate’em, but the corporations, small and large, are the engine of the economy. I suggest we proceed with caution on treating them as cash cows, they may just go join another herd.