US corporate income taxes 1934-2015
from David Ruccio
Corporate income taxes represent a small percentage of total federal tax revenue (at 11 percent) and they’ve been declining for a long time (since the 1940s).
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That is a real horror diagram, 33% of taxes are regressive, falling on the low income workers. It is a social, economic and moral horror! It represents taking money out of the economy at the wrong place and for the wrong reasons.
The Payroll Taxes are for Social Security (approximately $900 billion) and the rest going for MediCare. Social Security was designed that way back in the 1930s by FDR — you pay for it, you are entitled to it; it is not a welfare program coming out of general revenues (like it does in Europe).
SS was set up as insurance. Mostly I think to ease the queasiness of politicians, religious leaders, etc, worried that giving “free” money to the poor and old might destroy their characters and wreck their self respect.
One thing is for sure, it was not set up that way to use taxes for socio-economic purposes!
SS is something almost all conservatives wanted never to happen. But in 1935 FDR had most of the cards and besides he frightened them. FDR was a man who remembered both those who helped him and those who opposed him. He got even. He was not afraid to use the power he had to punish conservatives and their policies. Very different from today. We’re all afraid to call Ted Cruz what he is and what his father are – Christian sociopaths. Which ever version of the interpretation of the Christianity they espouse you accept the result is the same. The US must be rebuilt as a Christian nation with Biblical laws. Sound familiar?
Check and dbl check. I agree but think the regressive nature of the FICA tax was a part of the negotiations, giving the conservatives something.
“Government by organized money is just as dangerous as government by organized mob,” FDR 1936 campaign speech. How much FDR was hated by his class (the rich and powerful) is difficult to say. But they clearly did not wish him a long life. As to the regressivity of the SS tax, you are correct. But then everyone pays the same for the same insurance policy in a “free” market, right? Americans must be protected against having their characters and integrity stolen by too much free or under priced stuff, right?
No Ken, I do not agree. Nothing is free except money! Everything we get is the product of someone’s work and effort but to the federal government, if they are paying the bills, the money is free. If we get “free” healthcare someone will be doing the job of caring for us so it is not “free.” Additionally, the money received by health care folks in this example must eat and have homes in which to live so they must pay and use the services of food producers and construction people who do work for them in turn. Nothing is ever free unless you are a hermit and do it all yourself!
You are correct. I was attempting a little satire. Growing up in TX I’ve worked with all shades of conservatives. They share a belief that their hard work and taxes are paying for others to live a life of leisure while paying nothing for it. For them it is free, since others pay their way. This is an ideological choice for conservatives. I once debated the question of economics in early Texas (circa 1820-1850). I argued that communities in early Texas were just as likely to establish communal economies as competitive. The goal was survival, not ideological purity. So the community members did what was familiar and comfortable for them, and worked. I won the debate. But that did not change the course of politics in TX.
Beautiful, thanks!
It is the cycle that counts. Government ALWAYS spends before it taxes! It can not be any other way. Yes, bookkeepers can keep books in any way they wish but the fact remains that spending must preceded taxing.
There was a history book not too long ago by H.W. Brands, “TRAITOR TO HIS CLASS: The Privileged Life And Radical Presidency of Franklin Delano Roosevelt” — the title says it all. Eighty years later we are still under that influence.
Yes, he did things, big things. The first 13 or 14 years of my life were with FDR as POTUS.
This is an informative and insightful book. My only real critique with it is the title. I don’t like the use of the word “radical.” FDR’s Presidency was not radical. It was a practical Presidency. The nation for which FDR was responsible had some very big problems. 25% unemployment. banks failing all over, homes lost, farms lost, and on and on. He needed to address these problems. And the standard solutions had already failed. We have become so conditioned to believing and reacting as if all actions are ideologically driven that today it’s hard for many of us to recognize practical (workable compromises) attempts to solve problems. People who live their lives within ideologies find such solutions beyond justification and certainly immoral. I say to hell with these folks. Problems never fit nearly within ideological boxes, so why should their solutions.
It depends on what is meant by “radical”. FDR was a practical person/politician; but, his presidency was one of design. Prior to his presidency the U.S. had progressive impulses (under TR and Wilson) but reverted back to a more traditional agenda. FDR, right from the start (1933) by design was going to change the relationship between the people and their federal government — and this has never been reversed since. And when WWII came along that design got extended to an international role for the U.S. from which it has never retreated — the isolationists never amounted to a viable political force after the war. This strong theme is the backbone of another history book (and better noted than Brands’), David Kennedy’s ‘Freedom From Fear’.covering the Depression, New Deal, and WWII.
I would also mention the influence of The Greatest Generation (as named by Tom Brokaw) who came of age (as late teenagers/adults) during the Great Depression and then had to face the war. This generation was one of the strongest politically cohesive groups in American history — from the 1930s right through their working years of the 1960s/1970s and on into their retirement years of the 1970s/1980s. If you study the elections after the Stock Market Crash of 1929 — 1930, 1932, 1934, and 1936 — the Democrats keep increasing their margin of victory in each election in the House, the Senate, and the Presidency even though the recovery from the Depression is modest (15% unemployment in 1936). FDR did not have to work with Republicans — after the Election of 1936 there were only 16 Republicans in the Senate out of 96 senators. He formed a governing coalition with the New Deal that made the Democratic Party a national party with power — this had not been done from the post-Civil War up to 1932 — the Democrats prior to FDR were always split between the South, the North, and the West.
Another election which shows the strength/cohesiveness of the Greatest Generation is Truman’s election in 1948 — the Democrats split into three parties; Truman has opposition on his Left and Right and not only defeats Dewey but wins with 50% of the popular vote. [Bill Clinton couldn’t do that in 1992. And do you think somebody could do that today. Only Reagan in 1980.] I think the political influence of the Greatest Generation shows signs of waning in 1968 at the Democratic Convention in Chicago with the younger protestors out in the street. The Baby Boomers and the Gen-Xers are more devisive than their parents/grandparents — it shows in their inability to accomplish much politically (either with a Left-Wing or Right-Wing agenda) and it has affected economic performance (alla slowing GDP growth and an increasing Gini Index of inequality). The Greatest Generation is an extraordinary generation in American history and they had an extraordinary leader in FDR (JFK and LBJ are just shadows of that leadership for their generation).
The Great Depression was a turning point in American history primarily because first it was so big and second because it shook loose Americans’ faith that the nation was functional as is. The bigness of it meant its effects were widespread and deep. No one who wasn’t rich (and even some who were) or had no debt could escape it. Sales of homes, farms, autos, manufacturing resources, etc. declined sharply. The “New Deal” policies addressed or attempted to address these problems. As is often noted the Depression rattled the faith in the American economic system (American styled capitalism). But that faith had never been universal and other alternatives were offered on a regular basis before the Depression. The New Deal actually strengthened this faith by cleaning out much of the deadwood and corruption in the system and reinforcing the basic tenet that American capitalism remained the preferred path. In fact, it’s unlikely that Reaganomics or the neoclassical revolution that followed it could have happened had not the New Deal saved the American version of capitalism. Otherwise Reagan would likely have been politicking in the American version of socialism.
Tom Brokaw’s book is a bit over the top for me. But I agree that the generation of Americans that fought WW2 were based on those experiences tough and unwilling to accept back talk from politicians or business persons. They would likely have tarred and feathered such folks as Limbaugh and would have run out of office such politicians as McConnell. In short the tolerance of this generation for BS was low and their reactions to it direct and quick. The kept the nation on a moderate course through the 1970s. But by that time things were happening in the world the US could not control. The economic rise of Japan and Germany, the commitment of USSR to its own defense (and the corruptions involved in that), the advancement once again of neoliberalism in politics and economics, the collapse of colonial empires, the advent of OPEC, environmental degradation, etc. Carter’s answers to these were probably more workable and safer in the long-term. But these changes frightened many Americans. So they elected Ronald Reagan to banish these fears. Reagan’s “solutions” laid the foundation for many of the problems we face today. But you are correct that even Reagan was a “New Dealer.” He did not even mention abolishing Social Security, repealing anti-discrimination laws, clean air and water rules, etc. But he opened up the US for bank and business speculation and later control of financial wealth of almost incalculable proportions. Which is now being used to make the US one of the most unequal (economic and otherwise) nations on Earth. Even if we broke up every big bank, reinstated Glass-Segal, and put the speculators who created the 2007-2008 crash in jail I’m not certain we can save the nation from financial collapse. Some of Bernie Sanders policies might help, if he can get elected and get them into law.
As the people I grew up with in TX might say, “We’re up shit creek without a paddle and the canoe has a leak.”
Two simple changes might help the nation and many taxpayers. First, increase the corporate tax rate to 45% over a three year period. After three more years increase the rate to 55%. Second, new IRS rule (law if necessary) prohibiting corporations from passing along their tax payments to customers either directly or indirectly.
I think Beardsley Ruml’s argument in 1946 for zero corporate taxes is very compelling. His argument includes the now obvious assertion that taxes do not fund government operations and that tax policy should be evaluated only on its social and economic effects. He is basically saying don’t tax the corps but tax the corp officials and the stockholders. Ruml was, at the time, CEO of the NY Fed. His arguments are very compelling and they include the advisory to get smart and look at taxes for what they really are and forget the myth that they “pay” for government operations, a logically indefensible assertion. It is obvious that with fiat money, the government must spend before it can tax.
Not a bad idea. But corporations are hated widely so increasing their taxes feels good for a lot of people. But along with rich guys and banks, shareholders include retirement funds for teachers, fire fighters, police, etc. Not popular targets for increased taxes. As for corporate executives they have dozens of lawyers and accountants, as well as K street lobbyists to fight any new taxes aimed at them. It just seems taxing the corporations and then stopping them passing those tax payments on to their customers is the more direct and easier way to address this messed up taxing system. As a regulator I was often struck by the insanity of regulators assessing corporations with fines or taxing agencies leavening additional taxes on corporations and then allowing the corporations to just have customers pay the fines and the new tax bill. I have to admit, however that my political bosses most times did not support my suggestions.
I certainly agree with your view that the current tax system is a mess and it does need an overhaul. I just hope it can be done with the view that taxes are a socio-economic tool, not a source of funds to operate the government.
For the Feds. I agree with what you say. However, State governments are tax-based operations. Perhaps too much so.
Totally agree with all your points…
One problem with a zero corporate tax rate charles3000 is the activity that this increased revenue will pay for. Fiscal offshoring means that many corporations are effectively tax exempt already, and the only initiatives their collective imaginations can come up with are share buy backs and mergers and acquisitions. Neither look like effective long term strategies.
Good point and probably, as I recall, not an issue in 1946 when Ruml wrote the article. Perhaps it is time for the federal government to maintain corporate law under the commerce clause rather than leaving it to states.
Now that would be a fight in the current US Senate and House I’d like to watch. From the sidelines of course. Being on the floor could be dangerous, literally.
Yup, very true! I got a mental image of the proceedings from your words!
There should be an additional chart about the height of the income tax rate in relation to income.
Much of the income tax burden has been shifted. The tax rate for high income brackets has been lowered in an extraordinary way while the tax rate for lower brackets has been increased.
…pushing us into our current state of inequality.