Corporate Tax Rate
The U.S. federal corporate income tax was first implemented in 1909, when the uniform rate was 1 percent for all business income above $5,000. The rate peaked at 52.8 percent in 1969 and has since fallen. The corporate tax rate was changed on Jan. 1, 2018, from a tiered structure that staggered corporate tax rates based on company income to a flat rate of 21 percent for all companies, which is the rate today. [3]
Origins of the U.S. Federal Corporate Income Tax
The first federal income tax was levied by Congress from 1862–1872 to pay for the Civil War but was replaced by a tariff (a tax on imported goods that raises prices for consumers to advantage domestic producers). The federal income tax (a 2 percent flat tax on incomes above $4,000, including corporate income) was revived by Congress in the Income Tax Act of 1894, which the U.S. Supreme Court declared unconstitutional in 1895 in Pollack v. Farmers’ Loan & Trust. In a 5–4 decision, the justices ruled that federal taxes on personal income are “direct taxes,” a class of taxes that Article I, Section 2, Clause 3 of the Constitution requires be “equally apportioned among the states according to population.” Thus, imposing personal income taxes equally among states is “obviously impossible,” because state populations vary widely and fluctuate from year to year. [30]
Because corporate income taxes were considered excise taxes (taxes on the sale, or production for sale, of specific goods), the Supreme Court’s ruling did not apply to them. In a June 16, 1909, address to Congress, President William Howard Taft proposed simultaneous actions: a constitutional amendment allowing the federal government to levy a personal income tax and a separate federal tax on corporate income. The Corporation Excise Tax Act of 1909 imposed a 1 percent tax on corporate income above $5,000. On Feb. 3, 1913, Congress passed the 16th Amendment, giving Congress the “power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States.” [30][31][32]
1909–1978
From 1909—the first year the federal government levied a separate corporate income tax—to 1935, corporations paid a fixed percentage of their income in taxes regardless of how much they made (although taxes were usually exempted for the first several thousand dollars). From 1936 forward, the number of federal corporate income tax brackets has varied from one to eight. [3][62]
From 1909 through 1945, Congress consistently raised the corporate income tax, and despite a brief decrease from 1945–1952 to encourage business growth following World War II, Congress continued to raise it through 1978. From 1940 to 1942 alone, Congress passed four separate Revenue Acts that raised top marginal corporate income tax rates from 19 percent to 40 percent. In 1942, in the midst of World War II, President Franklin Delano Roosevelt said “when so many Americans are contributing all their energies and even their lives to the nation’s great task, I am confident that all Americans will be proud to contribute their utmost in taxes.” [5][35]
Vietnam War
President Lyndon Johnson, citing the need to approve “a sensible course of fiscal and budgetary policy” and unwilling to gut his comprehensive entitlement programs to pay for the Vietnam War, signed into law the Revenue and Expenditure Control Act of 1968. This act created a temporary 10 percent income tax surcharge on corporations and increased the top marginal tax rate from 48 percent to 52.8 percent. Congressional Chair of the House Ways and Means Committee and fiscal conservative Wilbur Mills (D-AR), an ardent skeptic of corporate tax increases, called the act “fiscal activism” and agreed to its passage only after a concurrent 10 percent cut in federal discretionary spending. [35][36]
1980s-90s
The 1980s saw four major changes to federal corporate income taxes. The most consequential change, the Tax Reform Act of 1986, reduced the number of corporate income tax brackets from seven to five and slashed rates for all businesses while eliminating $30 billion annually in corporate tax loopholes. Bill Bradley, a Democratic Senator from New Jersey who worked to pass the legislation, said that “the trade-off between loophole elimination and a lower top rate became obvious (the lower the rate, the more loopholes had to be closed to pay for it)….The bipartisan coalition produced a bill that…led to more…economic competitiveness.” Former Republican Senator Alan Simpson, in a statement blasting the act, stated that “the tax reform of 1986 [closed] loopholes that resulted in the largest corporate tax hike in history.…[President Ronald] Reagan raised taxes 11 times in eight years!” [9][37][38]
On Aug. 10, 1993, President Bill Clinton signed into law the Omnibus Budget Reconciliation Act, which created four new corporate tax brackets with increased rates for businesses with incomes over $335,000. Vice President Al Gore, in a statement hailing the bill’s passage, said this bill “means jobs, growth, tax fairness.…It’s a message of hope to the small business owner and 96 percent of all small businesses who will get a tax cut under this plan.” The bill was attacked by United States Chamber of Commerce President Richard Lesher, who said that the corporate tax increases would “slow economic growth and fuel inflation” and that “foreign competitors would gain an economic advantage over American goods here and abroad.” A group of 300 major corporations and trade associations known as the Tax Reform Action Coalition said it “strongly opposed Mr. Clinton’s move to increase the top rates for … corporate taxes.” From the passage of the bill until the end of Clinton’s term, the U.S. economy gained more than 21.4 million jobs, the unemployment rate fell from 6.8 percent to 3.9 percent, industrial production rose by 5.6 percent per year, and the Dow Jones Industrial average rose 26.7 percent per year. [28][39][40][41]
Corporate income taxes rose from 12.4 percent of total government receipts in 1996 to 15.6 percent in 2006, before declining again to 11.6 percent in 2016. [68]
International Rates
The global average corporate income tax rate is 23.51 percent, according to the Tax Foundation. Comoros, an island nation in the Indian Ocean, had the highest corporate tax rate in the world at 50 percent. Puerto Rico, which sets its own rates separate from the U.S. federal government, came in second at 37.5 percent, followed closely by Suriname with 36 percent. Globally, 15 jurisdictions impose no corporate tax. Meanwhile, the lowest corporate tax rate is found in Turkmenistan (8 percent), closely followed by Barbados, Hungary, and the United Arab Emirates (all 9 percent). However, Barbados’s effective tax rate is 15 percent for big companies. [87]
For more information on international rates, see ProCon’s International Corporate Income Tax Rates Table
Effective Corporate Income Tax Rates
Due to a wide variety of tax exemptions, preferences, and deductions, businesses rarely pay the statutory corporate income tax rate (the tax imposed by law). The “effective tax rate” is “the percentage of income actually paid by an individual or a company after taking into account tax breaks (including loopholes, deductions, exemptions, credits and preferential rates).” [34]
In 2011, the effective corporate tax rate in the United States was 29.2 percent (including state and local taxes), roughly in line with the 31.9 percent average of the six other largest developed economies (Canada, France, Germany, Italy, Japan, and the United Kingdom), and fourth highest among the 34 OECD countries. [2][44][45]
Of the 500 “large cap” companies (a market capitalization value of more than $10 billion) in the Standard & Poor (S&P) stock index, 115 paid a total corporate tax rate—federal and state combined—of less than 20 percent from 2006–2011, and 39 of those companies paid a rate of less than 10 percent. [1]
Current Rates
In Oct. 2017, House Republicans proposed a new tax plan supported by the Trump administration, the Tax Cuts and Jobs Act, that would cut the corporate tax rate from 35 percent to 20 percent, effectively an $845 billion corporate tax cut. On Dec. 22, 2017, President Donald Trump signed into law an amended version of the Tax Cuts and Jobs Act, introducing a single corporate tax rate of 21 percent, that took effect on Jan. 1, 2018. According to a Jan. 28, 2019, National Association for Business Economy survey, 4 percent of businesses increased hiring because of the 2017 Tax Cuts and Jobs Act. Since 2018, corporations have paid a 21 percent tax rate on income, regardless of their size or revenue.[3][55][56][62][69]
The corporate tax remained at 21 percent throughout the Biden administration. During his second term, Donald Trump promised to lower the corporate tax rate from 21 percent to 15 percent “for companies that make their product in America,” in order to “further support the revival of American manufacturing.” Companies that “outsource, offshore, or replace American workers” would not benefit from the lower rate. [83]
Global Minimum Rate Debate
On June 6, 2021, the G7 countries (Canada, Germany, France, Italy, Japan, the United Kingdom, and the United States) approved a Global Tax Deal that set a minimum tax rate of at least 15 percent for multinational companies. While the measure faces a long road to implementation, it was immediately applauded and criticized from all angles. On July 1, 2021, 130 countries and jurisdictions representing more than 90 percent of the global GDP agreed to an international taxation plan that would include a global minimum corporate tax rate of 15 percent. [70][71][72]
On Jan. 20, 2025, day one of the second Trump administration, the president issued an executive order titled “The Organization for Economic Co-operation and Development (OECD) Global Tax Deal,” which asserts the deal “has no force or effect in the United States.” [84]
Public Opinion
A majority of Americans across political and racial categories support raising the corporate tax rate for “big corporations.” Overall 79 percent of Americans support raising the rate, including 94 percent of Democrats, 78 percent of Independents, and 63 percent of Republicans, and including 85 percent of Black Americans, 82 percent of Asian Americans and Pacific Islanders, 81 percent of Hispanic Americans, and 77 percent of white Americans. [85]
A Gallup poll found 70 percent of Americans believe corporations pay too little in taxes, 17 percent believe corporations pay their fair share, and 7 percent believe corporations pay too much. [86]
Pros and Cons at a Glance
| PROS | CONS |
|---|---|
| Pro 1: Raising the corporate income tax rate would make taxes fairer. Read More. | Con 1: Raising the corporate income tax rate would lower wages and increase costs for everyday people. Read More. |
| Pro 2: Raising the corporate income tax rate would force companies to invest in the United States, rather than overseas. Read More. | Con 2: Raising the corporate income tax rate would force companies to take headquarters and earnings overseas. Read More. |
| Pro 3: Raising the corporate income tax rate would allow the federal government to pay for much-needed social and infrastructure programs. Read More. | Con 3: Raising the corporate income tax rate would weaken the economy. Read More. |
Pro Arguments
(Go to Con Arguments)Pro 1: Raising the corporate income tax rate would make taxes fairer.
As aBiden administration White House statement argued, “The current tax system unfairly prioritizes large multinational corporations over Main Street American small businesses. Small businesses don’t have access to the army of lawyers and accountants that allowed 55 profitable large corporations to avoid paying any federal corporate taxes in 2020, and they cannot shift profits into tax havens to avoid paying U.S. taxes like multinational corporations can. U.S. multinationals report 60 percent of their profits abroad in just seven low tax jurisdictions that, combined, make up less than 4 percent of global GDP. These corporations do not make money in these countries; they just report it there to take a huge tax cut. In 2018, married couples making about $150,000 working at their own small business paid over 20 percent of their income in federal income and self-employment taxes. By contrast, U.S. multinational corporations paid less than 10 percent in corporate income taxes on U.S. profits.” [73]
Large corporations have the ability to pay more taxes without much effect. As economist Kimberly Clausing explained, “Corporate taxes are paid only by profitable corporations, and for those without profits, any percent of zero is zero. Also, many companies can carry forward losses to offset taxes in future years. However, companies profiting in the current environment, such as Amazon or Peloton, can reasonably be expected to contribute a share of their pandemic profits in tax payments.” [76]
As Clausing continued, “The corporate tax, when it does fall on profitable companies, mostly falls on the excess profits they earn from market power or other factors (due to the dominance of large companies in markets with little competition, luck or risk-taking), not the normal return on capital investment. Treasury economists calculated that such excess profits made up more than 75 percent of the corporate tax base by 2013. A higher corporate tax rate can rein in market power and promote a fairer economy.” [76]
Pro 2: Raising the corporate income tax rate would force companies to invest in the United States, rather than overseas.
The overseas corporate tax rate (GILTI: Global Intangible Low-Tax Income) requires corporations to pay just 10.5 percent on overseas profits. By raising that rate to at least 21 percent, “the new minimum tax would be calculated on a country-by-country basis rather than on a global average, which would prevent companies from exploiting tax havens to drive their average rate down to the minimum—and eliminate a potential incentive to locate operations in high-tax foreign countries, rather than the United States, if the companies’ average foreign tax rate is below the minimum,” according to experts at the Center for American Progress. [78]
Itai Grinberg and Rebecca Kysar, both formerly of the U.S. Treasury Department, argued that “under current law, U.S. multinational corporations face only a 10.5 percent minimum tax on their foreign earnings, half the rate that they pay on their domestic earnings, incentivizing them to operate and shift profits abroad.” Increasing the minimum corporate tax rate would reduce “a corporation’s incentives to shift profits and jobs abroad….Under current law, companies have large tax incentives to put activities and earnings offshore; a strong minimum tax can reduce that tax distortion, favoring activity and earnings at home.” [77]
Pro 3: Raising the corporate income tax rate would allow the federal government to pay for much-needed social and infrastructure programs.
Corporate taxes pay for public services and investments that help the companies succeed. By not paying their fair share of taxes, corporations transfer the tax burden to small companies and individuals. [73][74]
A lower federal corporate tax rate means less government tax revenue, which in turn reduces funds to federal programs, investments, and job-creating opportunities. When the Tax Reform Act of 1986 reduced the top marginal rate from 46 percent to 34 percent, the federal deficit increased from $149.7 billion to $255 billion over 1987 to 1993. [25][65]
As the Center on Budget and Policy Priorities explained, “All of that tax cutting also significantly reduced federal revenues. Federal revenues as a share of the economy (gross domestic product, or GDP) stood at 20 percent in 2000. In 2019, at a similar peak in the business cycle, federal revenues had fallen to just 16.3 percent of GDP—which is far too low to support the kinds of investments needed for a 21st century economy that broadens opportunity, supports workers and helps those out of work, and ensures health care for everyone.” [75]
Pro Quotes
Steve Wamhoff and colleagues from the Institute on Taxation and Economic Policy:
“Trump proposes to cut the federal corporate tax rate from 21 percent to 20 percent, and further to 15 percent for “companies that make their product in America.” … Cuts in the federal corporate income tax mainly benefit owners of U.S. corporate stocks, which are held disproportionately by high-income households and by white households, which means they contribute to inequality in the U.S., even as many of the benefits flow out of the country to foreign investors.
Steve Wamhoff et al, “A Distributional Analysis of Donald Trump’s Tax Plan,” itep.org, Oct. 7, 2024
Senator Bernie Sanders (D-VT):
“At a time of massive wealth and income inequality and soaring corporate profits, it is an outrage that many large, profitable corporations continue to pay little to nothing in federal income taxes,”
“As working people struggle to pay rent and put food on the table, we have a corrupt and rigged tax code that is designed to benefit the wealthy and the powerful at the expense of working families. Meanwhile, Republicans would make a bad situation even worse by providing even more tax breaks to their corporate campaign contributors and the billionaire class while proposing massive cuts to Social Security, Medicare, and Medicaid. That is unacceptable. We need to create an economy and a government that works for all of us, not just the top one percent. And, one of the ways we can begin to do that is by making sure that large corporations pay their fair share of taxes. American workers should not be paying more in federal income taxes, in a given year, than profitable companies like Target, Amazon and T-Mobile.”
Bernie Sanders, “News: Sanders Introduces Legislation to Ensure Corporations Finally Pay Their Fair Share in Taxes,” sanders.senate.gov, Apr. 10, 2024
Chuck Marr, George Fenton and Samantha Jacoby, all of the Center on Budget and Policy Priorities:
“A major tax policy debate is expected in 2025 over the pending expiration of the individual and estate tax provisions of the 2017 tax law. But policymakers should also use that debate to revisit the 2017 law’s deep, permanent cut in the corporate tax rate, from 35 to 21 percent. A growing body of research shows that the corporate rate cut has delivered large gains to top earners but done little for everyone else. Raising the corporate rate to 28 percent ... would raise about $1.3 trillion over a decade, according to the Treasury Department, strengthening the federal budget outlook and supporting critical investments.”
Chuck Marr, George Fenton and Samantha Jacoby, “Congress Should Revisit 2017 Tax Law’s Trillion-Dollar Corporate Rate Cut in 2025,” cbpp.org, Mar. 21, 2024
Con Arguments
(Go to Pro Arguments)Con 1: Raising the corporate income tax rate would lower wages and increase costs for everyday people.
A Tax Foundation study found that for every $1 increase in state and local corporate tax revenues, hourly wages can be expected to fall by roughly $2.50. Lower wages for workers results in a decreased ability to buy goods, which leads to lower income for businesses and a net increase in unemployment. [10][11]
As Forbes contributor Adam A. Millsap argued, “It is important to remember that corporate taxes must be paid by people. Any corporate tax increase will be paid by either shareholders/owners, employees in the form of lower wages, or customers in the form of higher prices.… Shareholders/owners bear around 40 percent of state corporate income taxes while employees bear 30 to 35 percent. So, even though corporate tax increases are not levied directly on workers, they still affect workers indirectly by lowering their wages.” [80]
Experts from the Heritage Foundation estimated that between 75 and 100 percent of the cost of the corporate tax falls on American workers, resulting in a 1.27 percent (about $840 a year) reduction in income for the average worker. They cite research that estimated a loss of 159,000 jobs and a wage reduction of 1.8 percent if the corporate tax rate were increased to 28 percent. [82]
Con 2: Raising the corporate income tax rate would force companies to take headquarters and earnings overseas.
In 2017, the United States had the third highest combined federal and local average corporate tax rates in the world at about 39 percent, behind only the United Arab Emirates and Puerto Rico. The high tax rate forced American companies to relocate their employees overseas. [47]
Johnson Controls, a company with a market value of $23 billion, moved its headquarters from Milwaukee, Wisconsin, to Ireland. In a memo to employees, a spokesperson explained the move would save the company about $150 million dollars in U.S. taxes annually, and that setting up headquarters abroad “retains maximum flexibility for our balance sheet and ability to invest in growth opportunities everywhere around the world.” [47][48]
High corporate income tax rates also encourage U.S. companies to store their foreign earnings abroad instead of investing it into expansion and employment in the United States. A J.P. Morgan study found that 60 percent of the cash held by 602 U.S. multinational companies was sitting in foreign accounts. If an income tax cut were offered to companies that returned this cash to the U.S., an estimated $663 billion could be invested into business expansion and job growth in the United States. [7][49]
Con 3: Raising the corporate income tax rate would weaken the economy.
Erica York and Alex Muresianu of the Tax Policy Institute estimated that raising the corporate tax rate to 28 percent from 21 percent “would reduce GDP [Gross Domestic Product] by a cumulative $720 billion over the next 10 years.” [79]
As York and Muresianu explained, “Corporate income taxes are one of the most harmful ways to raise revenue. They place a higher burden on investment, reduce economic output, and reduce after-tax incomes across the income spectrum—negative economic effects that compound over time.” [79]
Bank of America CEO Brian Moynihan said lowering corporate income tax rates would provide a “certainty premium” that would allow businesses to expand: “you would see the economy grow and momentum continue to build, and unemployment continue to ease down.…All that will continue to build on itself.” [13]
Business Roundtable Tax and Fiscal Policy Committee Chair Gregory J. Hayes, chief executive officer of Raytheon Technologies Corporation, argued, “Prior to the pandemic, the U.S. corporate tax rate drove economic growth, creating 6 million jobs, pushing the unemployment rate to a 50-year low and increasing middle class wages. From 2018 to 2019, major U.S. companies grew their R&D by 25 percent compared to the two years prior. The current U.S. corporate tax rate has also helped put U.S. businesses on a more level playing field with global competitors and encouraged businesses to invest and grow here in the United States.” [81]
Con Quotes
Carol Miller, U.S. Representative (R-WV):
“Multiple studies show that corporate tax increases are directly passed on to consumers in the form of higher prices. A higher rate will also make American exports more expensive and companies less competitive in the global market. The result will be slower economic growth, fewer jobs, and less innovation....
A lower corporate tax rate keeps costs down, leading to lower prices for consumers and more investment in their workers. The reality is that if the corporate rate goes up, the burden will fall on consumers, employees, and retirees. As a small business owner, I know firsthand how important it is to take care of your employees and produce the best possible product. If I suddenly must pay more in taxes, I either have to cut back on investments into the business that create more jobs or pass increased costs onto my customers. This would happen to businesses around the country and would slow economic growth in the U.S. to a grinding halt.”
—Carol Miller, “Rep. Miller: Raising the Corporate Tax Rate Will Hurt American Business, Investment, and Consumers,” fortune.com, Sep. 25, 2024
Watson M. McLeish and Curtis Dubay of Tax Policy and the U.S. Chamber of Commerce, respectively:
Recently some policymakers have expressed support for raising the corporate income tax to offset the cost of other priorities, with some proposing to raise the corporate rate from 21% to 28%. The damage this change would do to America’s global competitiveness is clear: with an average combined federal–state corporate tax rate of 32.5%, the United States would become the second highest-taxed country in the OECD (second only to Colombia). But what would this change mean for local businesses, workers, and their families?
Raising the corporate tax rate from 21% to 28% would increase federal tax revenue by an estimated $910 billion over the next decade. But where would that $910 billion come from? Businesses have only three options to pay for higher taxes: raise prices; reduce costs; or lower returns to investors. In reality, they do all three. Recent economic research shows that just over half the cost of higher corporate taxes is borne by consumers in the form of higher prices, with another 28% borne by workers in the form of lower wages and the remaining 20% borne by shareholders (which includes retirement accounts) in the form of lower returns.
Watson M. McLeish and Curtis Dubay, “How Higher Corporate Taxes Would Affect Your Local Economy,” uschamber.com. Sep. 19, 2024
E.J. Antoni, research fellow at the Heritage Foundation:
Politicians are back to their hackneyed talking points about “corporations paying their fair share” and raising the corporate income tax. The irony is that no corporation really pays this tax—it secretly falls on employees, customers and shareholders....
Corporations pay taxes only in a nominal sense. Sure, a clerk at the business writes a check to the government, and the money comes out of the business’s account. But taxes are just another cost of doing business, and such costs are passed on to people.
E.J. Antoni, “Don’t Be Fooled: You’re Paying the Corporate Income Tax,” heritage.org, Aug. 23, 2024