Profits Up, Failures Down

What the chart shows, stated carefully. Corporate profits as a share of GDP bottomed at 6.81 percent in 1982 and have risen, unevenly but persistently, to 13.25 percent in 2025, the highest reading in the postwar record. Business bankruptcy filings peaked at 82,446 in 1987 and have fallen since, reaching 13,481 in 2022 before rising again to 26,606 in 2025. Over the same span the top federal corporate rate went from 52 percent to 21 percent.

What it does not show. It is tempting to read the tax markers as causes, and the chart will not support that. The corporate rate was cut sharply in 1987 and 1988, and business failures were at their all-time peak in exactly those years. The rate was raised in 1993, and both profits and failures moved in the direction the simple story says they should not. The 2018 cut from 35 to 21 percent is followed by a profit share that was already climbing for fifteen years, on a trend that is visually indistinguishable before and after. If tax rates were the dominant variable here, these markers would line up with the turns. They do not.

The bankruptcy line has a real problem worth naming. It counts filings, not failures. Most small businesses that fail never file for bankruptcy at all: they close, the owner absorbs the loss, and nothing appears in a federal court record. The 2005 bankruptcy reform made filing more expensive and procedurally harder, and filings fell afterwards, which tells you something about the cost of filing and not much about the rate of business failure. Read the red line as a measure of formal insolvency proceedings, which is what it is, rather than as a census of small businesses going under, which it is not. The two series also do not cover the same period: profits from 1960, filings only from 1980.

The scarcinality reading. The framework's habit is to ask which layer a constraint actually sits in, and this chart is a case where the popular answer and the visible evidence disagree. The story usually told about these two lines is a story about tax policy, in which lower corporate rates transfer margin from small firms to large ones. The chart does not carry that story. What it does show is a durable divergence between the profitability of incorporated capital and the survival environment for small firms, and a divergence that began around 1982 and did not turn at any of the tax markers.

The framework would look instead at what the treatise calls credit-coupled goods. A large corporation with investment-grade access to the bond market and a small firm dependent on a bank line are not exposed to the same scarcity even when they face identical tax rates, identical demand, and identical costs. When money tightens, the large firm refinances and the small one does not, and that difference is invisible in the tax code. The chart's turning point sits at the end of the Volcker disinflation, not at any tax act, which is the shape the framework predicts if the operative variable is access to credit rather than the rate on profits. That is a hypothesis this chart is consistent with rather than one it proves, and the honest form of the finding is negative: whatever produced this divergence, the tax markers do not track it.

Sources: Bureau of Economic Analysis, NIPA Table 1.12 corporate profits with inventory valuation and capital consumption adjustments, and Table 1.1.5 gross domestic product, annual, extracted from the published July 2026 release. Business bankruptcy filings from the American Bankruptcy Institute for 1980 to 2011 and from published US Courts annual tables for 2012 to 2025; the two sources use slightly different reporting periods and the seam falls at 2012. Top statutory federal corporate income tax rate from the statutory schedule, excluding surtaxes, state taxes, and the very different question of effective rates actually paid.