Corporate tax collections are down, a sign that companies are making use of sophisticated tax planning, stock options and other tools to reduce their tax burden, the Wall Street Journal reported.
Another factor cited by a leading tax expert at a forum on Tuesday is that the global economy is outpacing an income tax that was set up for the industrial age.
"The corporate tax base is under attack from many directions," Douglas Shackelford, professor at University of North Carolina's Kenan-Flagler Business School, said in prepared remarks before the Federal Advisory Panel on Tax Reform.
The nine-member panel, chaired by former Senator Connie Mack (R-FL), held its first hearing in Tampa this week, trying to gain a better understanding of the challenges facing corporate and small business taxpayers, the Journal reported.
Mack said smaller business and self-employed taxpayers "bear a substantial proportion of the estimated $125 billion in compliance costs" related to taxes.
"These costs create a disproportionate burden, as studies have found that the smaller the business, the higher the cost of complying with the tax code per dollar of tax paid," Mack said in a prepared statement.
Shackelford noted that corporate taxes have declined steadily from the 1950s to the 1980s, and stabilized somewhat over the past two decades.
According to the Center on Budget and Policy Priorities, corporate taxes fell from an average of 28% of federal revenues in the 1950s and 21% in the 1960s to an average of about 10% since the 1980s. They were $189.4 billion, or 10.1% of all federal revenues in 2004, according to the Office of Management and Budget.
"This stabilization, however, is misleading," Shackelford said. "Despite a decade of record profits, the corporate income tax never recovered to the levels of the less prosperous 1970s."
Factors in the eroding corporate tax base include:
- International competition and an information economy.
- Growth of "S corporations" and partnerships that "pass through" taxes.
- Employee stock options.
- Tax planning.