Estimated Revenue:
$498 billion
2024–2034. This estimate is from American Compass’s “Budget Model: First Edition,” which is based on the Congressional Budget Office’s score of single percentage point increases in the corporate tax rate.
Summary
The corporate tax rate is the percentage of profit that corporations must pay in taxes. These mainly “C” corporations are taxed at a separate rate from their employees and shareholders because they are considered separate legal entities.
Prior to the Tax Cuts and Jobs Act (TCJA), reducing the corporate tax rate from a top rate of 35%—the highest in the developed world—to 25% was widely considered a “longtime Republican goal” and featured prominently in Republican tax plans, including then-House Budget Chairman Paul Ryan’s FY2014 budget plan. TCJA went beyond that goal and reduced the corporate rate to 21%.
The Case for Increasing the Corporate Rate
Corporate status allows a firm to contract, borrow, sue, and purchase assets under its own name while those who operate and hold shares in the company enjoy limited liability for the corporation’s debts and lawsuits. In theory, this privilege is offered so that corporations can pursue public purposes beyond the capabilities of individuals and voluntary associations. The legal status and limited liability enjoyed by U.S. corporations provide wide societal benefits and encourage risk taking and investment, but they remain a privilege. So is offering a tax rate to corporations lower than that which individuals pay on their own income.
Lowering the corporate rate from the highest amongst OECD countries was sensible and benefitted American competitiveness, but continuing down from 25% to 21% had significantly less marginal benefit. While excessively high corporate tax rates are indeed a barrier to growth, a 25% corporate rate is reasonable and falls in line with the worldwide average weighted by GDP.
Rep. Chip Roy (R-TX) recently recommended increasing the corporate rate from 21% to 25% to help pay for individual and small business tax breaks. Policymakers should consider this change as they seek to pay for other tax cuts.
Recommended Reading
The Curse of Voodoo Economics
Conservatives should favor limited government, not reflexive tax cuts
If We Can’t Agree on a Global Minimum, Abolish the Corporate Tax
It may come as a surprise to many readers that arguments about radically altering the concept of corporate taxation do not hail exclusively from right-wing libertarian think tanks.
Taxing Families Like Companies
If families are people, and corporations are people, it stands to reason that families should be allowed to incorporate and file their taxes accordingly.
