Second, as the business has traveled overseas, multinationals have benefited from lower tax rates and credits against American taxes. "The US combined federal and state corporate tax rate has been stuck at 39% since 1986, while nearly all other countries have cut their rates. Canada, for example, is now down to around 20 percent," said Gary Hufbauer at the Peterson Institute for International Economics. So global corporations will "do their best to report earnings anyplace but in the U.S." What's more, corporate tax lawyers have predictably responded "by devising more ingenious ways to route income abroad." This is the sort of ingenious that leads to the Dutch Sandwich, the Double Irish, and other clever tax-loophole nicknames that when lined up, look like the menu for a European continental breakfast.



Third, the most important reason why corporate taxes are falling while corporate income is rising might be that the government no longer taxes most corporations as Corporations, with a capital C. Sole proprietorships (like any one-man biz), partnerships (like law firms), and S-corporations (like a small real estate company) are examples of "pass-through" businesses, where income is only taxed once. In other words, the income "passes through" the corporate tax code and goes straight to the owners.

"The explosion of pass-throughs" is the main reason for the forking of corporate income and corporate taxes, said Howard Gleckman at the Tax Policy Center. Look at the chart above, one more time. Between the 1960s and today, the percentage of overall business activity conducted by plane-old "C corporations" has declined from about 85 percent to 50 percent. So even as corporate income has increased, "C-corp" revenues have actually fallen as a share of the economy, Hufbauer said.



Lower-c corporations don't mean poor corporations, just smaller ones. Four in five dollars of all pass-through income is earned by taxpayers with earning more than $100,000; and more than a third of all pass-through income goes to millionaires, according to the Congressional Research Service.



The corporate income tax has eroded both because globalization happened and because we let it happen in the way we tax business income. We can't change the first. We can change the second.



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