How Low Can We Go On Taxes?

In the just completed fiscal year, combined federal personal and corporate income taxes fell to only 8.4 percent of the economy, their lowest level since before World War II and a third lower than in fiscal 2000—with no relief in sight.

Due in large part to the Bush tax cuts, personal income taxes have fallen to their lowest level as a share of the economy in more than 50 years.

Corporate taxes have plummeted even more than personal taxes. In fact, at only 1.2 percent of the economy over the past two fiscal years, corporate taxes are at their lowest level since the 1930s, except for one year during Ronald Reagan's first term.

The most recent OECD data show that U.S. corporate taxes as a share of the economy are now virtually the lowest in the industrialized world.

The 2002 and 2003 tax bills provided business tax breaks officially estimated to cost $177 billion in fiscal years 2002 through 2005, with $64 billion of that in fiscal 2004 alone.

While the exact cost of offshore corporate tax sheltering is unknown, reasonable estimates peg the cost at upwards of $50 billion a year.

Thus, recently created loopholes have slashed corporate tax payments by $100 billion or more annually—more than a 40 percent reduction since 2000.

Counting tax breaks that have been on the books for longer, corporations now pay considerably less than half of what they should. They also pay far less than they used to pay. In fact, at 1.2 percent of the economy, corporate taxes are now three-fifths less than the 3.0 percent of the economy that corporate taxes averaged from 1950 through 2000.

At the end of last July, Ways and Means Committee Chairman Bill Thomas (R-Calif.), with President Bush's blessing, introduced a bill to provide companies with a staggering $259 billion in new loopholes over the next decade. Among the items on this corporate wish list are $79 billion worth of expanded tax shelters for multinational corporations.