Decline in corporate tax revenue contributed to $407 billion deficit

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Decline in corporate tax revenue contributed to $407 billion deficit

By Andrew B. Einhorn Sep 11 2008, 12:55 PM

This week, the Congressional Budget Office (CBO) reported that the federal government will “run a near-record deficit of $407 billion for the budget year ending Sept. 30.”

While that's not news to those who have been following the budget shortfall, an annual trend for the Bush Administration, yesterday CBO Director Peter Orszag stated during a C-Span interview that a corporate income tax revenue shortfall largely contributed to the deficit.

According to Orszag, “corporate income tax revenue fell from 2.7% of the economy to 2.2% of the economy.” Troubling economic times have certainly widdled away corporate profits that would otherwise go towards income taxes. But that's only part of the story. As the Washington Post and the non-profit group Think Progress.org point out, "between 1998 and 2005, 'about two-thirds of corporations operating in the United States did not pay taxes.'"

So what does all this mean? For one, the IRS needs to do a better job collecting taxes. Second, the next President needs to balance the budget and ideally, help steer Congress into creating the same laws enforced by states that require an annual balanced budget except during emergencies or times of extreme need.

Some would also argue that cutting corporate tax rates would simply increase the deficit by further lowering available revenue from corporate taxes. Others argue high corporate tax rates are smothering American businesses, lowering the kind of risk-taking that leads to true innovation and business growth, and likely forcing more small businesses to cheat on their tax returns or not return them at all just to stay afloat. Economists have yet to prove either theory, but you'll be hearing more about this in the march towards the November elections.

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Read More: Congressional Budget Office (CBO), U.S. Congress, Business And Economy, Others

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Michael
September 11, 2008 4:18 PM

"'about two-thirds of corporations operating in the United States did not pay taxes." This is misleading, because the majority of US corporations are S Class Corporations, which don't have any declarable income because it is all paid out to the principals of the corporation. This style corporation is used most often by small businesses for legal and liability purposes. Essentially the income tax bill from these corporations is paid in the individual tax returns of the principals. This is not to say that the US tax structure is not hugely biased for corporations, just that this is not the evidence for that .

gary
November 19, 2008 4:38 PM

What a twisted look. By 2003, coroprate tax revenue had fallen to $131.8 billion, because of the economic crash causd by the dot.com bubble economic crash and the effects of 9/11 a year and a half later. By, 2007, this revenue had rocketed up to $370.2 billion. Yes, now it will mostly dissapear again.