Federal tax receipts are soaring, increasing $627 billion over the last year, according to a new report released by the Congressional Budget Office. Total federal revenues increased 18% in fiscal 2021, the largest one-year increase in 44 years, and exceeded $4 trillion for the first time ever.
Corporate taxes saw the largest increase, jumping 75% over a year ago. Corporate tax collections increased $158 billion to $370 billion, the highest level of corporate taxes ever collected. The surge in corporate taxes far exceeded the revenue estimates from earlier this year. Total corporate taxes are $132 billion, or 55%, higher than the CBO estimated in July, and $206 billion, or 125%, higher than the CBO projected in February of this year.
This massive jump in corporate tax revenues raises serious new questions about President Joe Biden’s proposal to raise the corporate tax rate. According to congressional estimates, a 25% corporate rate would raise $410 billion over the next 10 years. Corporate tax revenues rose half that amount since February, without the negative consequences of a rate hike.
Biden says he wants to recover revenue lost in the 2017 tax cut. But these new revenue projections show that corporate tax receipts are higher today than they were before and after the 2017 tax cut. The $370 billion level is $73 billion, or 25%, higher than in 2016, and $165 billion, or 80%, higher than 2018, the first year of the tax cut.
The corporate revenue increase is the result of higher corporate earnings taxed at the 21% rate that allows U.S. companies to expand and to be globally competitive. Raising the corporate rate now would reduce corporate earnings, risking the recovery.
One other important point to recognize. The record-high corporate tax receipts are coming from companies that are following the rules on the books and are paying taxes at designed rates. These companies are already paying their fair share. A corporate rate hike would penalize them, and not the companies that pay little or no taxes and would not be affected by a rate hike.
Now is not the time to raise the corporate tax rate. A new 25% rate would make U.S. companies pay one of the highest rates in the world. It would thus make the U.S. less competitive in global markets.
Bruce Thompson was a U.S. Senate aide, assistant secretary of the treasury for legislative affairs, and the head of government relations for Merrill Lynch for 22 years.
