Final answer:
The statement that the double taxation of corporate earnings is characteristic of the federal income tax system is true. Corporations pay taxes on profits, and shareholders pay taxes on dividends. Over time, corporate income tax as a % of GDP has decreased.
Step-by-step explanation:
The double taxation of corporate earnings refers to the taxation system where corporations pay income taxes on their profits, and then shareholders also pay taxes on the dividends they receive from those profits, effectively taxing the same money twice.
This is a key characteristic of the U.S. federal income tax system. As corporations are considered separate legal entities, they are subject to corporate income taxes on their profits, which are collected by the federal government. This is considered the third largest category of federal taxes. However, over time, the percentage share of corporate income tax compared to the Gross Domestic Product (GDP) has declined from about 4% in the 1960s to approximately 1% to 2% in recent decades.