New research from experts at the Urban Institute could change the way policymakers view the corporate income tax and might have a major impact on corporate tax reform efforts.
The corporate tax has long been a target for bipartisan criticism, both because its revenue has declined dramatically and the statutory tax rate is one of the highest internationally.
Reform efforts have often focused on avoiding “double-taxation,” with a corporation paying taxes on its income first and then its stockholders paying personal income taxes on their dividends and capital gains.
However, the new research found that three-quarters of the time, that personal income is not taxed because the stock is held in tax-free accounts — either by a non-profit entity or in a retirement account. That, combined with the use of tax planning by corporations to avoid the first instance of taxation, explains why corporate tax receipts have declined.
The new evidence could make fiscally responsible and bipartisan corporate tax reform more challenging because with less income available to tax, it is more difficult to lower the tax rate with an eye towards international competitiveness.
The Dwindling Taxable Share of U.S. Corporate Stock (Tax Policy Center)
New Picture of Corporate Shareholders May Turn Tax Debate Upside Down (Tax Policy Center)