America is experiencing a significant issue with its number of corporations, with a recent report from the Tax Foundation showing that the number is the lowest it's been in four decades.
The report, titled "America's Shrinking Corporate Sector," points to recently released IR data showing there were 1.6 million C corporations, or traditional corporations, in 2011, which is the lowest number of such corporations since 1974, according to CNS News.
The number is also 1 million less than the amount of corporations in 1986, when the number of corporations in America was at its highest. This means, the report says, that every year since 1986, "roughly 40,000 U.S. corporations have disappeared from the tax rolls. However, the losses have accelerated since 2006 to a rate of about 60,000 per year."
The Tax Foundation added that the decline in C corporations over the years has occurred while the U.S. experienced in increase in S corporations and partnerships that "pass profits to owners who report them on their individual tax returns," CNS News. The report said S corporations and partnerships have grown at a rate of about 1 percent and 2 percent per year, respectively, since 2006. These increases were down from a rate of 8 percent and 3 percent for S corporations and partnerships, respectively, in the 20 years prior.
The Tax Foundation points to the structure of America's tax code as the reason for these trends, since S corporations and partnerships file under the individual tax code, allowing them to experience only one layer of tax. C corporations, on the other hand, face double taxation in the form of the corporate tax and shareholder taxes on capital gains and dividends.
The number of corporations isn't the only thing to have gone down, as the Tax Foundation said business sector growth and profits have also experienced a hit due to the recession and its slow recovery, CNS News reported.
"C corporation profits, while extremely volatile, have generally trended downward as a share of GDP in recent decades, while the profits of S corporations and partnerships have trended upwards."
The Tax Foundation advised in the report that lawmakers should solve this problem by growing the traditional corporate sector and reduce corporate taxes, adding that they should follow the rest of the developed world and integrate the corporate and shareholder taxes so that corporations can avoid double taxation and different business would receive the same treatment. Other steps the think tank recommended include reducing exit strategies for U.S. multinational corporations and implementing a territorial tax system.
