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Understanding U.S. Corporate Tax Losses

Author

Listed:
  • Rosanne Altshuler

    () (Rutgers University, Department of Economics)

  • Alan Auerbach

    () (University of California, Berkeley)

  • Michael Cooper

    () (Department of Treasury, Office of Tax Analysis)

  • Matthew Knittel

    () (Department of Treasury, Office of Tax Analysis)

Abstract

Recent data on corporate tax losses presents a puzzle this paper attempts to explain: the ratio of losses to positive income was much higher around the recession of 2001 than in earlier recessions, even those of greater severity. Using a comprehensive sample of U.S. corporation tax returns for the period 1982-2005, we explore a variety of potential explanations for this surge in tax losses, taking account of the significant use of executive compensation stock options beginning in the 1990s and recent temporary tax provisions that might have had important effects on taxable income. We find that losses rose because the average rate of return of C corporations fell, rather than because of an increase in the dispersion of returns or an increase in the gap between corporate profits subject to tax and corporate profits as measured by the national income accounts. Our analysis also suggests that the increasing importance of S corporations may help explain the recent experience within the C corporate sector, as S corporations have exhibited adifferent pattern of losses in recent years. However, we can identify no simple explanation for the differing experience of C and S corporations. Our investigation concludes with some new puzzles: why did rates of return of C corporations fall so much early in the decade and why has the incidence of losses among C and S corporations diverged?

Suggested Citation

  • Rosanne Altshuler & Alan Auerbach & Michael Cooper & Matthew Knittel, 2011. "Understanding U.S. Corporate Tax Losses," Departmental Working Papers 201124, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:201124
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    References listed on IDEAS

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    Cited by:

    1. Nadja Dwenger & Viktor Steiner, 2014. "Financial leverage and corporate taxation: evidence from German corporate tax return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 1-28, February.
    2. Dwenger, Nadja & Rattenhuber, Pia & Steiner, Viktor, 2011. "Sharing the burden: Empirical evidence on corporate tax incidence," Discussion Papers 2011/19, Free University Berlin, School of Business & Economics.
    3. Alan J. Auerbach, 2009. "Implementing the New Fiscal Policy Activism," American Economic Review, American Economic Association, vol. 99(2), pages 543-549, May.
    4. Alan Auerbach, 2009. "US Fiscal Policy In Recession: What's Next?," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(2), pages 3-8, July.

    More about this item

    Keywords

    corporate taxation; tax losses;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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