Posted on December 22, 2022
The mid-December quarterly estimated payment of federal income taxes by corporations was due to the IRS by December 15, and by this point in the month the IRS has normally received about 90 percent of the month’s total corporate tax payments. So, we can estimate that such tax payments for December will total around $92 billion, or roughly 5 percent more than the $87 billion paid in December last year (see chart below). That would be the slowest growth in corporate receipts in a major payment month since 2020, when IRS-allowed payment delays caused substantial reductions in such payments. Although corporate income tax payments can bounce around from quarter to quarter, the payments in December are consistent with a slowing in corporate profit growth. And we only know the total amount of corporate income tax payments; we don’t know the composition among industries or the types of income and deductions that are responsible.
One caveat to the interpretation that corporate profit growth is slowing stems from the reconciliation legislation that the President signed into law in August (unofficially called the Inflation Reduction Act). In theory, the newly-enacted corporate alternative minimum tax–which doesn’t take effect until January 2023–could be inducing affected corporations to adjust their behavior before the tax goes into effect and therefore to modify their 2022 tax amounts and the December 2022 quarterly estimated payment. If law changes cause a change in tax payments, then we generally lose the link between the tax payments and underlying economic conditions. The new alternative minimum tax applies to a small number of corporations, those with the largest amounts of financial statement income. The Congressional Joint Committee on Taxation (JCT) estimated near the time of enactment that about 150 corporate taxpayers annually would be subject to the new tax, but that was before some later-adopted amendments limited the scope of the tax some, reducing the number of firms affected. Within that group, major sources of alternative minimum tax could stem from those domestic firms that take deductions for foreign-derived intangible income (too complicated to discuss here, but applying to firms with foreign sales) and from those firms that give employees certain types of stock-based compensation (like incentive stock options).
However, it’s hard to see how the new alternative minimum tax is causing significant downward effects on 2022 corporate taxes and slowing the growth in corporate income tax payments here in December. If anything, the estimates produced by JCT at the time of enactment look more consistent with revenues being boosted prior to the tax taking effect than being reduced: JCT estimated that the tax would raise federal revenues by around $35 billion in fiscal year 2023 and again in fiscal year 2024, while we would normally expect the new tax to raise less revenue in fiscal year 2023, when it will be in effect for only 9 months of the fiscal year, than in 2024, when it will be in effect for the full fiscal year. In any event, the new tax is rather complicated and could cause various types of corporate behavioral changes–income shifting and real activity changes–and, even if it doesn’t, the revenue raised alone makes interpreting corporate tax receipts in fiscal year 2023 more challenging.
