IRS Business Data in Pictures

Below are six charts I created from Internal Revenue Service (IRS) data that show patterns in American business over time.

From 1945 to 2005, the number of American businesses grew faster than the population. From the end of World War II until 1980, average revenues and net income at American corporations declined significantly, but have since remained largely constant. Since 1980, net income as a percentage of revenues at American businesses has increased. From 1990 to 2011, business income has declined as a fraction of total income of individual taxpayers.

Over the Past 60 Years, the Number of American Corporations has Risen Substantially

As Figure 1 indicates, from 1945 to 2005 the number of corporation tax returns per capita rose steadily. But then, the period from 2005 to 2010 marked the first five-year decline in the per capita number of corporations since the end of World War II.

Source: Created from Internal Revenue Service data

Source: Created from Internal Revenue Service data

Over the Past 30 Years, the Number of Businesses has Risen Dramatically

As Figure 2 shows, the per capita number of all business tax returns – which combine sole proprietorships and partnerships with corporations – grew substantially over the 1980 to 2006 period. Then between 2006 and 2010 the number of business tax returns per thousand people declined slightly for the first time since data have been collected (1980).

Source: Created from Internal Revenue Service data

Source: Created from Internal Revenue Service data

Over the Past 60 Years, Revenues of the Average Business First Fell and then Flattened Out

As Figure 3 shows, average revenue of corporations fell steadily between 1945 and 1980, when measured in inflation adjusted terms. Between 1980 and 2010, however, the average revenue per corporation has remained largely constant in real terms.

Source: Created from Internal Revenue Service data

Source: Created from Internal Revenue Service data

Over the Past 60 Years, Net Income of the Average Business First Fell and then Flattened Out

As Figure 4 shows, net income of the average corporation largely declined between 1945 and 1980 when measured in 2010 dollars. However, between 1980 and 2010, it has been mostly steady.

Source: Created from Internal Revenue Service data

Source: Created from Internal Revenue Service data

Over the Past 30 Years, Margins Have Risen Significantly

As Figure 5 shows, net income as a fraction of revenues was substantially higher in 2010 (9.5 percent) than in 1980 (6 percent). While the rise is far from linear, and the 2010 numbers are off their 2005 peak, the pattern does appear to be one of rising margins. (The thin black line in the figure indicates the linear trend and the r-squared indicates how well a straight line fits the data.)

Source: Created from Internal Revenue Service data

Source: Created from Internal Revenue Service data

The Business Share of Income has Fallen Significantly Over the Past Two Decades

As Figure 6 shows, business income has declined gradually, and linearly, from 4.1 percent of total income in 1990 to 3.2 percent in 2011. (The narrow black line in the chart shows the trend and the r-squared shows the accuracy of a straight line as a representation of the data pattern.)

total income share

Source: Created from Internal Revenue Service data

4 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

4 Reactions

  1. Martin Lindeskog

    So, what should we make of all these data pictures? Increased amount of businesses starting, but with lower profitability?

  2. I think it has something to do with businesses spreading themselves thinly. You can easily get a good portion of the market as long as you provide a unique service. As long as you’re not just another product or service provider on the market, then you’ll get good revenue. I think this is just a summary for businesses on the whole given that more businesses are done in a smaller scale.

    • Martin Lindeskog

      Aira Bongco: Could develop your ideas on this issue? One of the picture is saying that the margins have increased during the last 30 years.

      I wonder about the intention with all these pictures? What is the overall picture? Please, give me the enlightenment! :)

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