TY - JOUR AU - Altshuler, Rosanne AU - Auerbach, Alan J AU - Cooper, Michael AU - Knittel, Matthew TI - Understanding U.S. Corporate Tax Losses JF - National Bureau of Economic Research Working Paper Series VL - No. 14405 PY - 2008 Y2 - October 2008 DO - 10.3386/w14405 UR - http://www.nber.org/papers/w14405 L1 - http://www.nber.org/papers/w14405.pdf N1 - Author contact info: Rosanne Altshuler Department of Economics Rutgers University 75 Hamilton Street New Brunswick, NJ 08901 Tel: 212-662-8432 E-Mail: altshule@economics.rutgers.edu Alan J. Auerbach Department of Economics 530 Evans Hall, #3880 University of California, Berkeley Berkeley, CA 94720-3880 Tel: 510/643-0711 Fax: 510/643-0413 E-Mail: auerbach@econ.berkeley.edu Michael Cooper US Department of Treasury Office of Tax Analysis Washington DC 20020 E-Mail: michael.cooper@treasury.gov Matthew Knittel US Department of Treasury Office of Tax Analysis Washington DC 20020 E-Mail: matthew.knittel@do.treas.gov M1 - published as Rosanne Altshuler, Alan J. Auerbach, Michael Cooper, Matthew Knittel. "Understanding U.S. Corporate Tax Losses," in Jeffrey R. Brown and James M. Poterba, editors, "Tax Policy and the Economy, Volume 23" University of Chicago Press (2009) AB - 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? ER -