Corporate income tax collections are near a 75-year low, as a share of the economy, after a new law reduced rates and allowed companies to deduct investments immediately.
In the trough of the Great Recession in 2009, as companies laid off hundreds of thousands of workers each month, the amount of corporate income taxes collected by the federal government plunged by almost a third. It was the largest quarterly drop since the Commerce Department began compiling the data in the 1940s. No other period came close.
Until this year.
In the first half of 2018, corporate tax collections dropped to historically low levels as a share of the economy, according to data from the Bureau of Economic Analysis. That is pushing up the federal budget deficit much faster than economists had predicted.
.. The reason is President Trump’s tax cuts. The new law introduced a standard corporate rate of 21 percent, down from a high of 35 percent, and allowed companies to immediately deduct many new investments.
.. The growing deficit has forced the Trump administration to adjust its claim that the tax cuts would pay for themselves by generating increased revenue from faster economic growth. The White House’s Office of Management and Budget said this month that it had revised its forecasts from earlier this year to account for nearly $1 trillion of additional debt over the next decade — almost $100 billion a year in additional deficits, on average.
.. That is hindering the government’s ability to stabilize its balance sheet before the next recession hits or maintain spending programs that could help blunt the pain of future downturns. Economists equate that process to refilling the city water tower during periods of heavy rain, in order to prepare for the next drought. It’s not happening this time around.
.. Over time, that repatriation should generate tax revenue.
But, as Ms. Clausing noted, companies can spread the bill over the next eight years, which is why we’re not seeing that money lifting corporate tax payments in the near term.
.. provisions of the new tax law, which allow companies to write off new investments immediately, could prove more popular than some forecasters anticipated.
.. Multinationals could also be shifting money — on paper, basically — into the United States solely to take advantage of the expensing provision and reduce their American tax bills.
It’s also possible, but far too soon to tell, that changes to multinational taxation, including what is considered a de facto minimum tax on certain income earned overseas, will not raise as much revenue as expected.
For Multinationals, the Tax Bill’s Good Likely Outweighs the Bad
If lower rates and a territorial system are the carrots, the House and Senate bills also include sticks—provisions intended to discourage tax-law arbitrage by large companies. One such measure, in both bills, would impose a global minimum tax of 10% on most companies. House and Senate details differ, but in essence, companies paying less than 10% tax on profits in foreign jurisdictions—dubbed “global intangible low-tax income,” or GILTI—would have to make up the difference to the IRS. That would narrow the advantage for firms operating in low-tax countries like Ireland, Luxembourg or various island tax havens.