Corporate Profits and Corporate Taxes
by Mike Kimel
Corporate Profits and Corporate Taxes
Based on a comment by reader Troy, the following graph from FRED, posted without comment:
Figure 1
Slightly left of center economic commentary on news, politics and the economy.
mike,
It’s pretty simple. Multinationals like to realize their profits, if possible, where the tax rate is lowest. Quiz: which would you rather collect: 0% of 36% of profits or 15% of 15% of profits.
It’s simple. Multinationals like to realize their profits where the tax rate is lowest. So…… if you are a country, what whould you rather have: 0% of 39% of profit, or 15% of 15% of profits? Take your time…..use a calculator if necessary…..
Log scale would be more useful…
Two possibly interesting questions.
1) Is CP including both S and C corporations? For only one of the two even pays the corporate income tax that makes up FCTAX and the other pays regular income tax. And yes, there has been a large structural change in recent decades, the make up of S and C corporations has changed.
2) Globalisation. We know that a large number of large companies now make much of their profits outside the US. This is included in CP. However, such profits are:
a) Subject to foreign tax and US corporate income tax is only levied on the difference between foreign tax already paid and US tax rates. So even if the corporate tax rate was the same the world over and no one ever dodged any at all then FCTAX would be falling in relation to CP over time. Because foreign profits of US corporations would be paying tax in other countries, not the US.
b) The offshore deferment.
Would be very interesting to see properly adjusted numbers….
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