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Jane Gravelle, CRS, Corporate Tax Reform: Issues for Congress, RL34229 (2021).

In the most recent update of the Congressional Research Service pamphlet, Corporate Tax Reform: Issues for Congress, RL34229 (2021), Jane Gravelle presents a survey of the recent economic literature that has been invoked to support various changes in the corporate income tax. Gravelle is an economist who has spent her career bridging the gap between academic approaches to tax and the nitty gritty of tax policymaking within the beltway. In this document she explains how little anyone knows about the corporate income tax in the US.

As Gravelle points out, the corporate income tax has shrunk in importance in the last 70 years, declining from 30% of federal tax revenues and 5.6% of GDP to less than 10% of federal tax revenues and less than 3% of GDP. Of course, at the beginning of that time period, the corporate income tax could be used for the purposes of most economic analysis as essentially the equivalent of all business income taxes. As Gravelle points out, the rise of other business forms that afford the benefits of incorporation without attracting the corporate tax is responsible for a large portion of this shift. Sheltering through offshore entities has contributed much of the rest.

The report is in many respects a brief against arguments to the effect that raising corporate rates will actually lower the revenue collected or will impose unintended burdens on labor. Gravelle reviews the recent economic studies regarding various impacts of an increase in the corporate tax. These include those studies exploring the behavioral responses (under what conditions is a Laffer-revenue-reducing response possible), the incidence (does labor bear the corporate tax, and if so, what part of labor) and the distributive effects (who owns the capital most affected).

The summary provided of this literature is rather dense, especially since it assumes the reader is fully conversant in both the statistical methods and the classic models involved. The benefit to the non-economist reader is not an easily digested synopsis of each of these recent studies, although the references are more than adequate for the reader hoping to build a firm background in the literature. The virtue in this report is instead the revelation of the weak spots in the literature on which current policy debates rely.

The report is far more useful than just a debunking of some of the current economic literature and the tendency for overclaiming by those relying on it. It also outlines in summary fashion the actual structure of the current tax structures through which business income is taxed and summarizes the tax rates actually imposed on income derived through various business forms. In particular, Table 1 on page 8 shows different effective tax rates for various alternative forms of organizations under alternative rate structures, assuming a 29.6% individual rate. The range and complexity of the effective rates that could be applicable to domestic business income, depending upon the choice of form and distribution, may come as a surprise to those who deal only with the individual income tax, or with only the corporate income tax. This thoroughness will be helpful for those trying to comprehend the current complexities, not just for those whose expertise is not in corporate tax, but also for those approaching the topic from a legal perspective who need to understand better the economic perspective on the topic.

Finally, the report describes various current proposals pending before Congress. In many ways, this report, like many other CRS reports, documents the preliminary steps taken by Congress but no longer memorialized in committee reports and other once-common types of legislature history. Those unfamiliar with CRS reports more generally—or who think that they are still hard to obtain—should visit the CRS website and explore what Gravelle and her fellow CRS writers have to offer.

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Cite as: Charlotte Crane, What Do We Know About the US Corporate Income Tax?, JOTWELL (November 24, 2022) (reviewing Jane Gravelle, CRS, Corporate Tax Reform: Issues for Congress, RL34229 (2021)), https://tax.jotwell.com/what-do-we-know-about-the-us-corporate-income-tax/.