One of the common refrains we hear from people who want to focus on “fixing” the budget deficit by increasing federal tax revenues is that U.S. corporations pay less in income taxes than what businesses in other nations pay.
But in focusing on just U.S. corporate income taxes, these people are ignoring a huge chunk of the taxes that U.S. businesses pay to the federal government. They also pay the employers’ portion of federal payroll taxes, such as those supporting the Social Security and Medicare programs. And as it turns out, those taxes aren’t cheap.
Looking back over the past fifty years, we find that before 1978, U.S. corporations and businesses paid the largest portion of their taxes in the form of federal corporate income taxes. After 1978, they paid the largest portion of their taxes in the form of the employers’ portion of federal payroll taxes.
Despite these changes, the total amount that U.S. corporations and businesses pay in federal taxes as a percentage of annual GDP has been fairly steady through all that time, typically ranging between 4.5% and 5.5% of annual GDP, at least outside of the deep recessions or short-lived economic booms that have taken place since 1960.
What that means is that U.S. businesses are paying today roughly the same amount in taxes as a percent of GDP as they have during the past 50 years. That relatively constant figure then means that today’s extremely high budget deficits are not the result of U.S. businesses paying too little, or regular taxpayers paying too little in taxes for that matter, but are instead the result of Washington D.C. spending far too much.