Excess returns are returns from productive investments that exceed “normal returns,” which are the minimum returns required by firms to undertake the investments. The amount of excess returns matters for both equity and efficiency: high and persistent excess returns concentrate income and wealth, weaken competitive pressures, and reduce investment and innovation that drive long-run economic growth.
This brief provides estimates of excess returns in U.S. non-financial corporations. It finds:
(1) Excess returns averaged approximately 77% of total returns to U.S. non-financial corporations from 1995 to 2022.
(2) Excess returns increased over time. They were almost 4 percentage points higher in 2009–2022 than in 1995–2008.
(3) Excess returns in 2022 were $1.76 trillion – about equal to federal spending on Medicare and Medicaid that year and more than 20 times the estimated cost of a year of universal childcare and pre-K. A modest increase in the corporate tax rate could substantially support such programs.
This report is part of IMPA’s series on corporate tax and personal income tax policy. Check our publications page for the latest reports and analysis from IMPA.
For media coverage of IMPA’s analysis, check our In The News page.