FACT CHECK: Are Corporate Profits At Record Highs, Corporate Taxes At Record Lows?
Democratic Sen. Dick Durbin claimed Tuesday that “as a percentage of the gross domestic product, corporate profits in America have never been higher” and “corporate taxes paid have never been lower.”
Verdict: False
While corporate profits are relatively high and corporate income taxes are relatively low, corporations have fared better in other years.
Fact Check:
Durbin made the claim about corporate earnings during a Senate speech in which he argued against the GOP tax plan.
“Profits are at their highest, taxes are at their lowest, and the Republicans come to us and say: ‘Well, clearly, what we need to do is to cut corporate taxes again,'” said Durbin. “I disagree.”
Although the senator’s office did not respond to a request for supporting data, economists pointed us to a historical table from the Office of Management and Budget that calculates corporate income taxes as a percentage of gross domestic product (GDP).
Corporate taxes were 1.6 percent of GDP in 2016, but contrary to Durbin’s claim, that’s not a record low. The lowest rate recorded was 0.6 percent of GDP in 1934, at a time when the top corporate tax rate stood at just 13.75 percent.
Corporate income taxes rose sharply to an all-time high of 7.1 percent of GDP during World War II, dropped unevenly until 1983, and have hovered around one or two percent ever since.
Economists often attribute lower corporate taxes to the declining number of companies that classify as C corporations in recent decades. After major changes to the tax code in 1986, businesses increasingly organized as limited liability companies (LLCs) and other business types that offered lower tax rates.
This trend means that corporate income taxes in recent years are low relative to, say, the 1950s and 1960s. But they are not at record lows. In fact, as a share of GDP, corporate income taxes have landed at or below the 2016 rate of 1.6 percent nearly two dozen times since record keeping began in 1934.
Durbin stands on firmer ground with his claim about corporate profits.
Data published by the Bureau of Economic Analysis shows that after-tax profits reached a peak of 9.6 percent of GDP in 2012 after the Great Recession had ended.
These profits have since subsided to 8.6 percent of GDP, so corporate profits are not at record levels either. But they’re still high; the current decade aside, the only other year on record with higher profits as a percentage of GDP was 1929.
Although the causes behind the recent spike in profits are hotly contested, economists cite theories including stagnant wage growth and a wave of corporate mergers.
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