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Corporate America paying its lowest share of taxes since Eisenhower

Businesses paying smaller share of tax revenue
  • U.S. companies contributed 7.6% of the $3.5 trillion in total federal income tax revenue collected for 2018, down two percentage points from the previous year. 
  •  Individual taxpayers contributed 57% of revenue last year, up from 54% in 2017. 
  • The percentage of taxpayers who are audited by the IRS has fallen steadily in recent years, largely because of agency budget cuts.

While polls suggest that most Americans feel they're not benefiting from the recent overhaul of the nation's tax laws, U.S. corporations have more to crow about: New IRS data show American companies are paying their smallest share of federal income tax revenue in nearly 60 years.

Businesses contributed 7.6% of the $3.5 trillion in total tax revenue collected for fiscal-year 2018, the tax agency said in a report -- that's a two percentage point decline from the previous year. After refunds, that figure falls to 6.8%. By contrast, individuals are shouldering a larger share of the country's tax burden, accounting for 57% of revenue last year compared with 54% in 2017. Most of the rest of the country's tax revenue stems from employment taxes.

The findings come amid continuing debate over the impact of the 2017 Tax Cuts and Jobs Act, which slashed the corporate tax rate to 21% from 35%. Supporters of the corporate tax cut, including President Donald Trump, argue that lowering business taxes boosts profits, drives investment and spurs economic growth. But the new law has also made it easier for some corporations to lower their tax burden to zero

The IRS data doesn't provide company-level data on taxes, but the overall trend highlights the declining share of corporate taxes across the decades. In 1960, corporations provided about one-quarter of all tax revenue, based on IRS data. At that time, individuals contributed less than half of total tax revenue. 

Fuel for the political fire

The data may provide fuel for corporate tax critics like Sen. Bernie Sanders, a candidate for the 2020 presidential nomination who has accused profitable companies such as Amazon of not paying their fair share. On Monday, the Vermont independent also condemned Ford Motors for cutting jobs after enjoying tax breaks from the Tax Cuts and Jobs Act. 

Other critics say the drop in corporate income tax revenue will result in a larger national deficit -- the gap between the revenue the U.S. takes in every year and what it spends -- and make it harder to fund the government and federal programs. For instance, public funding to colleges and universities has been slashed since the recession, which has pushed up the price tag of a college degree for students and their families. 

Fewer audits

Separately, the IRS said it audited about 1 million tax returns filed in calendar year 2017, or about 0.5% of all returns. The number of audited returns has been declining, with the agency noting it audited more than 1.5 million returns in 2013. Years of funding cuts are behind the reduction in audits, with the agency reducing its staffing from 100,000 employees in 2010 to just over 79,000. 

At the same time, the Tax Cuts and Jobs Act boosted the workload for the agency, which is responsible for determining how some parts of the new tax law should be applied.