President Joe Biden wants to pay for much of his US employment plan – a $ 2.65 trillion proposal to fund infrastructure, research and development, and other items – by increasing the corporate tax rate from 21% to 28%.
This is still below the 35% rate that was in place before President Donald Trump signed the tax bill in 2017. Republicans argue, however, that an increase would put the US at a competitive disadvantage internationally.
In NBC’s May 2 edition of Meet the Press, Treasury Secretary Janet Yellen defended the government’s approach, suggesting that corporate profits should rise but largely escape taxation.
“Currently corporate tax is only 7% of total federal tax revenue, and corporate income has increased relative to gross domestic product,” Yellen said.
“This is also in the context of global negotiations to try to stop a decades-long race between countries to compete for businesses by lowering their corporate tax rates,” she added. “And we believe that will be successful.”
Yellen was on target when she said corporate taxes make up about 7% of federal tax revenue. But we wondered if she was right to say that corporate income has increased as a percentage of GDP.
The answer is yes in the long run, but not much in recent years.
The economists we interviewed agreed that a reasonable measure of how to judge Yellen’s claim is company profit after tax as a percentage of GDP, which is calculated each year by the US Department of Commerce’s Bureau of Economic Analysis.
The data shows that this number has fluctuated between around 4% and 8% since the end of the Great Depression.
If you skip a three-year slump during the upheaval of the 2007-09 Great Recession, the percentage has stayed in an even narrower range in recent years.
Between 2004 and 2019, corporate profits fluctuated between 6.5% and 7.7% of GDP. (Data for 2020 is not yet available, but the coronavirus pandemic is likely to skew the data anyway.)
This does not mean a large or sustained increase. There is no clear uptrend line.
“The definition of ‘ascended’ is in the eye of the beholder, but it doesn’t look like much,” said Douglas Holtz-Eakin, president of the center-right American Action Forum.
However, if you look over the long term, the data supports Yellen’s claim.
The averages per decade show that the period from 2010 to 2019 has the highest percentage since data collection began in the 1930s.
Based on this breakdown of data, “I would say Secretary Yellen is basically correct,” said Gary Burtless, an economist at the Brookings Institution.
Finance has not provided additional information about this article.
Yellen said: “Corporate income has increased in relation to gross domestic product.”
We did not find a dramatic uptrend line in corporate earnings as a percentage of GDP. If you parted ways for three years during the Great Recession, the percentage has been within a tight range over the past decade and a half.
However, in the long run, the decade between 2010 and 2019 had a higher percentage than any decade that dates back to the 1930s.
We rate the statement as half true.