Have Supra-Normal Returns to Corporations Been Increasing Over Time?

Abstract

This paper examines the difference between a corporate income tax base and a corporate consumption tax base over time. Using a micro-data panel of C corporations’ tax returns from 1992 to 2013, we estimate the fraction of the tax base attributable to the risk-free return in each year, and show that it has gradually declined over time, averaging 40 percent from 1992-2002 and 25 percent from 2003-2013. This decrease means that the difference between an income tax base and a consumption tax base has also declined, and suggests that “excess” returns are becoming more important to the tax base.