Sources of Federal Income

GE was in the news this mourning.  It turns out that GE paid no taxes on 14 billion in corporate earnings in their last fiscal year!  For most Americans, certainly for the very many that are struggling to make ends meet and looking painfully at their tax bill, this news hasn't gone down well at all.  Here's some common sense.

Common Sense first notes that what GE did to eliminate their Federal Tax liability is entirely legal and above board.  So if you think that it's not right that $14 billion in corporate earnings shouldn't be taxed at 0% your complaint shouldn't be with GE.  After all, they are just following the tax code.  You know, the tax laws passed by our elected congress whose campaigns are financed by now unlimited corporate campaign contributions (at least according to the Supreme Court).

So Common Sense thought it might be interesting to look at sources of Federal income and why corporations are taxed as they are.

In the United States the way we tax corporations, individuals including wealthy individuals has varied considerably over time.  Here's a chart that's informative and a link to the data.

In the late 1930s corporate and individual taxes were about equal and most Federal income came from other sources.  Starting in the mid 1940s taxes from individuals started to climb as a percent of federal spending and taxes from corporations started to fall.  This trend has continued through today and is expected to continue into the future.  This chart focuses on this trend.

Clearly in the mid 1940s corporate tax revenue as a percent of Federal revenue began a more or less steady decline and individual tax revenue rose above 40% where it has stayed.  This change reflects changes in tax laws particularly the way we tax corporations.

The obvious common sense question is are corporations being taxed fairly or has Congress created a tax code that unfairly benefits corporations?  How should corporations be taxed?

These are questions for another day.  What Common Sense has shown is that over the last 70 years or so the Federal tax burden has been shifted dramatically onto individuals.