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Form F.B. 131

BOARD OF GOVERNORS

FEDERAL RESERVE SYSTEM

Jffice Correspondence
To
From

fiTlfllrmnn

Toiff
fflti

Date Novemhp/r 6t 1940
Subject: TVratlnii nf Cnrpfyrate Profits

Bails Pespres

I believe that you will find interesting some rough estimates which we have developed of the share of corporate profits drawn
off in taxes. These estimates were made in connection with a study
now in preparation on the characteristics and economic effects of
the existing tax structure under conditions of rising national income•
They are merely first approximations and will be revised after further
research.
It appears that existing Federal and State taxes on corporate
profits, including both taxes paid by corporations and by individual
dividend recipients, amount to about 35 per cent of the profits before
tax of corporations receiving net income. 1/ The proportion of taxes
to net profits of all corporations is, of course, higher.
As corporate profits rise this percentage will increase,
first, because the excess profits tax is levied on the increase in
profits, and, second, because dividends received by individuals will
fall into progressively higher surtax brackets. Taking account of
these factors, we estimate that about 60 per cent of the increase
in corporate profits before tax will be drawn off through taxes on
corporations and individuals.

£Q
1/ Profits include tax-exempt interest but exclude dividends received
from other corporations.