The Congressional Budget Office noted last week that U.S. corporate tax revenue has hit a 40 year low, driven down by corporate tax cuts and the widespread use of loopholes and tax havens. While corporate profits have rebounded to their pre-recession heights, corporate revenue has yet to even remotely follow suit.
One of the big factors helping corporations avoid taxes is their ability to report profits earned all over the world in low- or no-tax jurisdictions like Bermuda or the Cayman Islands. As Center for American Progress Director of Fiscal Reform Seth Hanlon noted, corporate profit shifting costs the U.S. more in revenue every year than the country spends on the entire Department of Education or Department of Homeland Security:
Profit shifting erodes the corporate revenue base, draining the United States of tens of billions of dollars in revenue every year. And it is getting worse. The U.S. government was estimated to have lost about $90 billion in revenue in 2008 from profit shifting, up from $60 billion in 2004. To put that figure in perspective, the corporate income tax only raised an average of $300 billion per year during the 2004-08 timespan, suggesting that profit shifting is draining the U.S. Treasury of a significant share of corporate tax revenues.
The U.S. currently has the second lowest effective corporate tax rate in the developed world. In the last three years, at least 30 major corporations paid no federal corporate income tax at all, despite making $160 billion in profits. In his State of the Union address, President Obama called for a minimum tax on corporations, saying, “no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas. From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here.”