Why Have Corporate Tax Revenues Declined?

This paper examines the source of changes in corporate tax revenues during the last twenty-five years. It finds that legislative changes explain less than half of the revenue decline during this period. Falling corporate profits have had a larger influence on revenue collections than a11 legislative changes taken together, a result that is often obscured in studies focusing solely on the average corporate tax rate. Changes in capital recovery provisions are the most important legislative factor influencing corporate tax revenues, especially in the last five years. The paper also considers the impact of the Tax Reform Act of 1986. The new law will increase the average tax rate on corporate profits by approximately 10 percent. By 1990, the average tax rate will equal its level in the late 1970s, although it will remain substantially below its level in the 1960s and the early 1970s.