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The GAO reported that 80 tax expenditures resulted in the government forgoing corporate tax revenue totaling more than $181 billion in 2011.

GAO Highlights Cost of Corporate Tax Expenditures

  • 5/1/2013

GAO Highlights Cost of Corporate Tax Expenditures

The Government Accountability Office (GAO) recently told Congress that 80 tax expenditures resulted in the government forgoing corporate tax revenue totaling more than $181 billion in 2011. Eliminating or modifying these expenditures would not just affect corporations, because many of them are available to individuals engaged in businesses not organized as corporations, GAO noted.

The Tax Executives Institute (TEI) recently published Guideposts for Tax Reform II, which builds on an earlier policy statement, Guideposts for Tax Reform I. These publications outline principles that TEI believes should be considered by the tax writing committees as they embark on comprehensive tax reform. TEI told tax writers that the U.S. corporate tax rate “must be competitive.”


Congress asked GAO to describe trends in the number of corporate tax expenditures and estimated corporate revenue losses, and the use of corporate tax expenditures in 2011, and to compare the size of corporate tax expenditures to federal spending by budget function.

GAO told lawmakers that tax expenditures (such as credits and deductions) support federal policy goals but result in revenue loss by the federal government.

Corporate tax expenditures

GAO identified the seven largest corporate tax expenditures in 2011:

  • Accelerated depreciation of machinery and equipment: $76.1 billion
  • Deferral of income from controlled foreign corporations: $41.4 billion
  • Section 199 domestic production activities deduction: $9.8 billion
  • Research tax credit: $8.3 billion
  • Exclusion of interest on public purpose state and local bonds: $7 billion
  • Deferred taxes for financial firms on certain income earned overseas: $6.2 billion
  • Credit for low-income housing investments: $5.8 billion

Corporate returns decline

GAO told Congress that the number of corporate taxpayers has steadily declined in recent years because more businesses are organizing their operations as pass-through entities than as C corporations. In tax year 2010, the IRS reported almost 1.7 million active C corporations filed Form 1120, U.S. Corporation Income Tax Return, down from 1.9 million in tax year 2007 and 2.2 million in tax year 2000.

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