United States

Taxing Businesses: Domestic Investment

Part 8 of a series about Taxing Businesses

After the 1980s tax reform the decline in savings and the increase in consumption caused domestic investment to fall, swamping any increase due to incentives from lower taxes on high incomes.

Data source: Federal Reserve Economic Data

The codes used to download data: 

  • W171RC1Q027SBEA .   Net domestic investment, Billions of Dollars, Quarterly, Seasonally Adjusted Annual Rate
  • W170RC1Q027SBEA    Gross domestic investment, Billions of Dollars, Quarterly, Seasonally Adjusted Annual Rate
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Taxing Businesses: Personal Consumption

Part 7 of a series about Taxing Businesses

 

As corporate savings decreased (as a consequence of increasing the number of pass-through businesses), it was not replaced by personal savings but by personal consumption. Since the 1980s, consumption as a percent of GDP, went from around 60% to 68% mostly due to more money spent on services.

Data source: Federal Reserve Economic Data

The codes used to download data: 

  • DDURRE1A156NBEA   Durable goods
  • DSERRE1A156NBEA    Services
  • DNDGRE1A156NBEA   Nondurable goods,

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Taxing Businesses: Tax Receipts

Part 5 of a series about Taxing Businesses

Although profits and therefore corporate tax receipts varied with the business cycle, the corporate tax receipts generally declined from the 1950s to late 1970s, falling to less than 3% of GDP in the bad economy due to inflation and oil shocks.  However Federal tax receipts collected from corporate tax code never returned to previous values when the economy recovered because the number of c corporations declined and the number of pass-throughs increased. With the increase in pass-throughs one would expect the receipts from individual income tax returns to increase but they didn't.


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Taxing Businesses: Decline of Listed Companies on Stock Exchange

Part 4 of a series about Taxing Businesses

This is an intriguing graph showing the decline of companies listed in the United States on the stock exchange. (These companies would be corporations whose's stocks are freely traded on a stock exchange, not pass-throughs).

The tax changes in the 80s provided a tax incentive to change the business structure from C corporation to pass-throughs like LLCs. Originally, the IRS was very strict as to when a business could be treated a pass-through entity, however, that changed on January 1, 1997. That is when you see the ratio of listed companies the stock exchange drop dramatically.

Data Notes: Federal Reserve Economic Data (FRED); Historical Data for listed companies The U.S. listing gap Craig Doidge, G. Andrew Karolyi, and René M. Stulz 

  • FRED code for Number of Listed Companies for the United States (DDOM01USA644NWDB)
  • FRED code for Civilian Noninstitutional Population (CNP16OV

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Taxing Businesses: Lowest Marginal Rate

Part 3 of a series about Taxing Businesses

Combining the different scenarios from the previous two posts in the series, I highlighted the lowest marginal rate available to US businesses (one version with pass-though business income taxed as earned income the second taxed as unearned income). These graphs, showing how different business structures are taxed a different top rate and that the business structure that offered the lowest marginal rate has changed over a 99-years.


Lowest Marginal Rate: Earned Income Scenario

  • After 1970, pass-through businesses taxed as earned income via the individual tax code offered the lowest marginal rate.
  • 1935-1939; 1952-1970 the lowest option was the effective top rate on C corporate profits & capital gains. 
  • Before 1935; 1940-1951 the lowest option was the effective top rate on C corporate profits & dividends. 

Lowest Marginal Rate: Unearned Income Scenario

  • After 1981, pass-through businesses taxed as earned income via the individual tax code offered the lowest marginal rate.
  • 1935-1939; 1952-1981 the lowest option was the effective top rate on C corporate profits & capital gains. 
  • Before 1935; 1940-1951 the lowest option was the effective top rate on C corporate profits & dividends.

Data Notes available in Part 1 and Part 2 in the series



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