October 24, 2013
Since 2008, receipts from corporate income taxes have been smaller, relative to the size of the economy, than their historical average of 1.9 percent of gross domestic product (GDP)—largely because the recent recession substantially reduced taxable corporate profits. Temporary provisions in tax laws also played a role, particularly provisions that let firms accelerate deductions for investments they made in certain equipment between 2008 and 2013. CBO projects that corporate income tax receipts will rise as a percentage of GDP in the next few years—to levels above the historical average—as the economy continues to recover and those temporary provisions expire. After 2016, however, receipts are projected to decline as a percentage of GDP—dropping back near their historical average by 2023—as profits fall relative to GDP. The relative decline in profits is expected to stem from increases in corporations’ interest payments, growth in the share of national income going to workers, and increased deductions for investments as the stock of business capital rises due to the economic recovery.
For more information on CBO’s latest projections of corporate income tax receipts, see The 2013 Long-Term Budget Outlook (September 2013) and Updated Budget Projections: Fiscal Years 2013 To 2023 (May 2013).
Pamela Greene is an analyst in CBO’s Tax Analysis Division.