Differential Taxation: A Convergence of Interests between American Banking and Government

Abstract

This paper demonstrates that the interests of American banking and government have converged after the early 1980s and relates this trend to modern financial deregulation, revealing a symbiosis that would later influence the global financial crisis of 2007-2008. An examination of corporate profit and taxation in the United States reveals an anomaly: from the early 1980s until the financial crisis, banking profits after tax sharply outpaced those of the corporate average despite their effective tax rates having simultaneously increased relative to those of the corporate average. These conditions thereby created a mutually beneficial relationship between American banking and government in which banks earned higher profits and the government earned higher tax revenues. However, this tax arrangement ultimately depended on unsustainably deregulated banking profits, and fell apart during the financial crisis of 2007-2008.