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Differential Taxation: The Case of American Banking

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  • Ostojić, Mladen

Abstract

This paper maps an empirical history of corporate profit and taxation in the United States, with a special focus on the differential profit and taxation of banks relative to other corporations. An examination of these trends reveals a striking anomaly within the American banking sector: from the early 1980s until the financial crisis of 2007-2008, its after-tax profits sharply outpaced those of the corporate average despite its effective tax rates having simultaneously increased relative to those of the corporate average. This curious combination of improved differential performance and an increased differential tax burden may have been due to banking deregulation – strong enough to boost pre-tax profits so much that they more than offset the effects of increased taxation and also raised after-tax profits along the way. In addition, these trends reveal a convergence of interests between American banking and government, with the former earning higher profits and the latter earning higher tax revenues. Whether implicitly or explicitly created, this tax arrangement relied on unsustainably deregulated banking profits and ultimately collapsed during the financial crisis of 2007-2008.

Suggested Citation

  • Ostojić, Mladen, 2015. "Differential Taxation: The Case of American Banking," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 157993, November.
  • Handle: RePEc:zbw:esthes:157993
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    File URL: https://www.econstor.eu/bitstream/10419/157993/1/bna-439_20150427_ostojic_differential_taxation_mrp.pdf
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    References listed on IDEAS

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    1. James R. Barth & R. Dan Brumbaugh & James A. Wilcox, 2000. "Policy Watch: The Repeal of Glass-Steagall and the Advent of Broad Banking," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 191-204, Spring.
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    Cited by:

    1. Bichler, Shimshon & Nitzan, Jonathan, 2017. "Growing through Sabotage: Energizing Hierarchical Power," Working Papers on Capital as Power 2017/02, Capital As Power - Toward a New Cosmology of Capitalism.
    2. Nitzan, Jonathan & Bichler, Shimshon, 2018. "The CasP Project: Past, Present, Future," Review of Capital as Power, Capital As Power - Toward a New Cosmology of Capitalism, vol. 1(3), pages 1-39.
    3. Bichler, Shimshon & Nitzan, Jonathan, 2020. "Growing through Sabotage: Energizing Hierarchical Power," Review of Capital as Power, Capital As Power - Toward a New Cosmology of Capitalism, vol. 1(5), pages 1-78.

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