Two Cheers for Corporate Tax Base Broadening
Alan D. Viard | National Tax Journal
September 30, 2009

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The United States federal corporate income tax features a top statutory tax rate of 35 percent, a rate that rises to about 39 percent when state corporate income taxes are included. As the U.S. Department of the Treasury (2007b) notes, this statutory tax rate is the second-highest among Organisation for Economic Co-Operation and Development (OECD) countries. Treasury also notes, however, that the ratio of corporate tax revenue to Gross Domestic Product (GDP) from 2000-2005 was only 2.2 percent, substantially lower than the 3.5 percent OECD average. Treasury (2007b, p. 10) attributes the low revenue yield to "the narrowness of the U.S. corporate tax base," reflecting accelerated depreciation, "special tax provisions for particular business sectors," favorable treatment for debt finance, and tax planning.

The U.S. Office of Management and Budget (2009) lists numerous tax expenditures for the corporate income tax. Some of the larger items, with associated fiscal 2010 costs, are deferral of tax on overseas earnings ($38 billion), deduction for domestic production activities ($11 billion), exclusion of interest on state and local bonds ($10 billion), expensing of research costs and the research and development tax credit ($9 billion), various energy provisions ($6 billion), the low income housing tax credit ($4 billion), exclusion of interest on life insurance savings ($3 billion), inventory property source rules ($3 billion), lower rates for small corporations ($3 billion), deduction for charitable contributions ($2 billion), and the exemption of credit union income ($1 billion).[1] For comparison, the budget projects fiscal 2010 corporate income tax revenue at $179 billion.

A number of economists have called for revenue-neutral reforms that broaden the corporate tax base while lowering the statutory tax rate. This approach has been endorsed by Aviva Aron-Dine (2008), then of the Center on Budget and Policy Priorities, and Jason Furman (2007), then of the Brookings Institution. At the November 2008 National Tax Association conference in Philadelphia, such a policy change was endorsed by Jane Gravelle of the Congressional Research Service and Rosanne Altshuler, then of Rutgers University, as reported by Tandon (2008).

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Alan D. Viard is a resident scholar at AEI.

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About the Author

 

Alan D.
Viard
  • Alan D. Viard is a resident scholar at the American Enterprise Institute (AEI), where he studies federal tax and budget policy.

    Prior to joining AEI, Viard was a senior economist at the Federal Reserve Bank of Dallas and an assistant professor of economics at Ohio State University. He has also been a visiting scholar at the US Department of the Treasury's Office of Tax Analysis, a senior economist at the White House's Council of Economic Advisers, and a staff economist at the Joint Committee on Taxation of the US Congress. While at AEI, Viard has also taught public finance at Georgetown University’s Public Policy Institute. Earlier in his career, Viard spent time in Japan as a visiting scholar at Osaka University’s Institute of Social and Economic Research.

    A prolific writer, Viard is a frequent contributor to AEI’s “On the Margin” column in Tax Notes and was nominated for Tax Notes’s 2009 Tax Person of the Year. He has also testified before Congress, and his work has been featured in a wide range of publications, including Room for Debate in The New York Times, TheAtlantic.com, Bloomberg, NPR’s Planet Money, and The Hill. Viard is the coauthor of “Progressive Consumption Taxation: The X Tax Revisited” (2012) and “The Real Tax Burden: Beyond Dollars and Cents” (2011), and the editor of “Tax Policy Lessons from the 2000s” (2009).

    Viard received his Ph.D. in economics from Harvard University and a B.A. in economics from Yale University. He also completed the first year of the J.D. program at the University of Chicago Law School, where he qualified for law review and was awarded the Joseph Henry Beale prize for legal research and writing.
  • Phone: 202-419-5202
    Email: aviard@aei.org

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    Name: Regan Kuchan
    Phone: 202-862-5903
    Email: regan.kuchan@aei.org
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