Understanding U.S. Corporate Tax Losses

61 Pages Posted: 20 Oct 2008 Last revised: 4 Aug 2010

See all articles by Rosanne Altshuler

Rosanne Altshuler

Rutgers, The State University of New Jersey - Department of Economics

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Michael Cooper

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Matthew J. Knittel

US Department of Treasury

Date Written: October 2008

Abstract

Recent data present a puzzle: the ratio of corporate tax losses to positive income was much higher around 2001 than in earlier recessions. Using a comprehensive 1982-2005 sample of U.S. corporation tax returns, 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 NIPA corporate profits. 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 a different pattern of losses in recent years. However, we can identify no simple explanation for this differing experience. 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

Altshuler, Rosanne and Auerbach, Alan Jeffrey and Cooper, Michael and Knittel, Matthew J., Understanding U.S. Corporate Tax Losses (October 2008). NBER Working Paper No. w14405. Available at SSRN: https://ssrn.com/abstract=1286409

Rosanne Altshuler

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Jersey Hall
New Brunswick, NJ 08901
United States

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

Michael Cooper

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Matthew J. Knittel

US Department of Treasury ( email )

1500 Pennsylvania Ave., NW
Washington, DC 20020
United States

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