Sunday, February 05, 2012

What Tax Rate Did Corporations Pay In 2011?

See With Tax Break, Corporate Rate Is Lowest in Decades By DAMIAN PALETTA of the WSJ. Excerpts:
"Total corporate federal taxes paid fell to 12.1% of profits earned from activities within the U.S. in fiscal 2011, which ended Sept. 30, according to the Congressional Budget Office. That's the lowest level since at least 1972. And well below the 25.6% companies paid on average from 1987 to 2008.

Corporate income-tax receipts typically fall during recessions, and they declined sharply after the 2008 financial crisis, which wiped out big swaths of profits across the huge financial sector. But U.S. profits have rebounded sharply in recent quarters, while tax receipts have stayed low.

So where is the money? There are a lot of moving pieces, budget watchers say, but one view shared inside Washington is that a temporary tax break—supported by both political parties—is a key reason.

This tax break, known as "bonus depreciation," has allowed companies to write off investments in goods like industrial equipment, manufacturing machinery and computers in the year in which they're bought rather than over time."

One thing this might relate to is the taxes rich people pay. Some of the highest earners pay 15% because their income comes from dividends and those get taxed at a lower rate. But some economists say that is misleading. They point out that those earnings were already taxed as corporate profits.

The corporate tax rate is 35%. But as this article shows, it is not the same for all companies or industries, depending on what kinds of deductions they can make (like spending on new technology). And the rate changes over time, like with these temporary reductions in the rate.

So let's take the 25% rate or the long term average. Suppose I own all the stock in a company which earns a $100 profit. So I only get $75 in income. But then I pay 15% of that on the dividend I got. That is $11.25. If you add that to the $25 already paid in corporate taxes, the total tax paid is $36.25. On $100 income, the rate is 36.25%.


Anonymous said...

so it appears that the tax on the wealthy have too many variables,which leads it to be judged best under Ceteris Paribus conditions.

Cyril Morong said...

Thanks for dropping by and commenting. For anyone, we need to get all of their income and all of the taxes they paid. Then divide the total tax bill by all the income earned and we have their tax rate.