It appears that the recent drop in corporate tax levies noted by the Biden government as a cause of concern and justification for raising the corporate tax rate, among other proposals to raise taxes on businesses, was primarily due to temporary factors related to the pandemic rather than the one Tax is due to the Cuts and Jobs Acts (TCJA) of 2017. In its latest forecast, the Congressional Budget Office (CBO) expects corporate tax levies to rebound to $ 238 billion (1.1 percent of GDP) and $ 317 billion this year Dollars (1.3 percent of GDP) next year, and $ 379 billion (1.5 percent of GDP) in 2023 – a record high in nominal terms and almost on par with the average corporate tax levies as a percentage of GDP before that TCJA.
The accompanying graphs show CBO’s projections of corporate tax revenues before and after the TCJA, suggesting that corporate tax revenues will reach near the levels projected before the adoption of the TCJA by 2023. In June 2017, prior to the TCJA going into effect, the CBO projected corporate tax revenues in 2023 at $ 395 billion, which is within 4 percent of its current estimate. The current and pre-TCJA projections track very closely through 2025 (and then diverge, although it is not clear why).
The Office of Management and Budget (OMB) Biden government’s own forecast tells a similar story, predicting that under current law corporate tax revenues will rise to 1.63 percent of GDP in 2025, which is the prediction before the TCJA ( 1.62 percent) is slightly exceeded. from the Trump administration’s OMB in 2017. In nominal dollars, the OMB’s 2017 forecast projected corporate tax revenue for 2025 is within 5 percent of the Biden administration’s OMB forecast.
In terms of actual surveys, corporation tax as a percentage of GDP averaged 1.55 percent in the 10 years prior to the TCJA (2008-2017), slightly more than what CBO is currently doing for 2023 (1.50 percent), 2024 ( 1.49 percent) and 2025 (1.49 percent) and slightly less than what OMB is forecasting for 2024 (1.61 percent) and 2025 (1.63 percent).
One reason the CBO and OMB expect corporate tax levies to return to historic levels is because the corporate tax base in the TCJA has been broadened along with the lowering of the corporate tax rate. Another reason is that corporate profits and the economy have grown significantly since the TCJA and are expected to continue to grow rapidly this year and next.
Given these projections, which could be further revised upwards given the pace of economic growth and corporate profits, it seems clear that the 2017 tax reform did not significantly reduce the revenue potential of corporate tax. Policy makers should wait and see how the economy recovers from here before proposing higher corporate taxes.
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