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Treasury Secretary Janet Yellen speaks during a virtual roundtable with Black chambers of commerce across the country on Feb. 5, 2021. (AP) Treasury Secretary Janet Yellen speaks during a virtual roundtable with Black chambers of commerce across the country on Feb. 5, 2021. (AP)

Treasury Secretary Janet Yellen speaks during a virtual roundtable with Black chambers of commerce across the country on Feb. 5, 2021. (AP)

Louis Jacobson
By Louis Jacobson May 3, 2021

Janet Yellen partly correct about corporate income, GDP

If Your Time is short

• There is no sharp upward trend in corporate profits as a share of gross domestic product. The percentage has mostly moved within a narrow band for the past decade and a half.

• However, over the longer term, there’s some support for Yellen’s assertion. The decade between 2010 and 2019 did see a higher percentage than any decade going back to the 1930s.

President Joe Biden wants to pay for much of his American Jobs Plan — a $2.65 trillion proposal to fund infrastructure, research and development, and other items — by raising the corporate tax rate to 28% from 21%. 

That’s still below the 35% rate in effect before the tax law President Donald Trump signed in 2017. But Republicans argue that any increase would leave the United States at a competitive disadvantage internationally.

On the May 2 edition of NBC’s "Meet the Press," Treasury Secretary Janet Yellen defended the administration’s approach, suggesting that corporate profits are rising yet largely escaping taxation.

"Right now, corporate income tax amounts to only 7% of total federal tax revenue, and corporate income has increased as a share" of gross domestic product, Yellen said

"This comes also in the context of global negotiations to try to stop a decades-long race to the bottom among countries in competing for business by lowering their corporate tax rates," she added. "And we feel that will be successful."

Yellen was on target when she said corporate income taxes account for about 7% of federal tax revenues. But we wondered whether she was right to say that corporate income has increased as a share of GDP. 

The answer is yes over the long term, but not much in recent years.

Economists we interviewed agreed that a reasonable metric for assessing Yellen’s claim is after-tax corporate profits as a percentage of GDP, which is calculated every year by the U.S. Commerce Department’s Bureau of Economic Analysis.

The data shows that this figure has fluctuated between about 4% and 8% since the end of the Great Depression.

 

If you leave out a three-year dip during the upheaval of the 2007-09 Great Recession, the percentage in recent years has stayed within an even narrower band.

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Between 2004 to 2019, corporate profits have fluctuated between 6.5% and 7.7% of GDP. (Data for 2020 is not available yet, but the coronavirus pandemic is expected to skew the data anyway.)

This doesn’t amount to a large or sustained increase. There’s no clear upward trend line. 

"The definition of 'gone up' is in the eye of the beholder, but it does not look like much," said Douglas Holtz-Eakin, president of the center-right American Action Forum.

However, if you look over a longer period of time, the data does provide some support for Yellen’s assertion.

The averages by decade show the period from 2010 to 2019 has the highest percentage since the start of data collection in the 1930s.

 

Based on this slicing of the data, "I’d say Secretary Yellen is basically correct," said Gary Burtless, an economist at the Brookings Institution.

The Treasury Department did not provide further information for this article.

Our ruling

Yellen said, "Corporate income has increased as a share of" gross domestic product.

We found no dramatic upward trend line in corporate profits as a share of GDP. In fact, if you separate out three years during the Great Recession, the percentage has moved within a narrow band for the past decade and a half.

However, over the longer term, the decade between 2010 and 2019 did have a higher percentage than any decade going back to the 1930s.

We rate the statement Half True.

Our Sources

Janet Yellen, remarks on NBC’s "Meet the Press, May 2, 2021

Federal Reserve Bank of St. Louis, "Shares of gross domestic income: Corporate profits with inventory valuation and capital consumption adjustments, domestic industries: Profits after tax with inventory valuation and capital consumption adjustments," accessed May 3, 2021

Center on Budget and Policy Priorities, "Policy Basics: Where Do Federal Tax Revenues Come From?" accessed May 3, 2021

Email interview with Dean Baker, senior economist at the Center for Economic and Policy Research, May 3, 2021

Email interview with Gary Burtless, senior fellow at the Brookings Institution, May 3, 2021

Interview with Douglas Holtz-Eakin, president of the American Action Forum, May 3, 2021

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Janet Yellen partly correct about corporate income, GDP

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