The 2025 Corporate Income Tax

I wanted to comment on Richard Rubin’s report at the Wall Street Journal on the argument over the federal corporate income tax. Here’s where he sets the stage:

WASHINGTON—The 21% U.S. corporate tax rate is the biggest single variable in the sprawling 2025 tax debate, and the two parties are trying to turn that dial in opposite directions with major consequences for companies’ profits and federal revenue.

The rate could climb as high as 28% if Democrats sweep November’s elections and move as low as 15% if Republicans gain full power.

President Biden’s plan for a 28% rate would reverse half of Republicans’ 2017 rate cut, pushing the U.S. corporate rate back near the highest among major economies. A 15% rate—some Republicans are heading that way, but the party hasn’t settled on a plan—would match the lowest level since 1935, boosting profits and rewarding shareholders. Presumptive Republican presidential nominee Donald Trump told corporate executives last week that he wanted a 20% rate.

Each percentage point is worth more than $130 billion over a decade in tax revenue, creating a $1 trillion-plus gap between the poles of the parties’ positions and giving the largest U.S. companies an outsize interest in the election’s outcome.

I found Mr. Rubin’s report fair and balanced and he does make some good points, for example:

The corporate tax is one of the most progressive ways of raising revenue, with much of the burden falling on higher-income households, but the reality of who pays it is more nuanced than just saying “companies” or “rich people.” Economists and government agencies generally agree that shareholders ultimately bear much of the cost, with workers and consumers paying some, too. Shareholders, generally, are wealthier than the population as a whole.

The corporate tax is one of the few ways the U.S. can, indirectly, tax foreign investors in U.S. securities and nonprofits with large tax-free endowments.

But the shareholder base also includes pension funds, 401(k) accounts and some middle-income households. Biden and Democrats play down effects on those groups. They also don’t count corporate tax increases as violating the president’s pledge to protect households making under $400,000 from tax hikes.

I thought this post might be a good opportunity for me to put down on marker on taxes more generally.

First, from an economic standpoint the corporate income tax is one of the least efficient taxes. The most efficient corporate income tax rate is 0%. Plus, as has been noted at the rate of 28% which President Biden has advocated our corporate income tax would be higher than those of Italy, Canada, France, Netherlands, India, Belgium, Spain, and Luxembourg. It would also be higher than those of Denmark, Norway, and Sweden. As noted that puts U. S. companies at a competitive disadvantage.

In my view if you want to spend more there are several alternatives:

  • Raise the personal income tax and increase the effective tax rate (the taxes that people actually pay). The highest effective tax rate in the United States has been around 21% which is where we are now. Retorting that other countries pay higher rates is an inadequate reply. What works in one country does not necessarily work in another. In some countries they eat bats or snails. We don’t in the United States. Plus just about everything the government does in the United States is more expensive than anywhere else to get the same results. As a consequence people in other places trust their governments more than we do.
  • Just issue ourselves credit. That is what we have been doing for some time. Not only is that regressive but we should be prepared for our ability to do that to end suddenly and, potentially, catastrophically.
  • Cut spending somewhere else. The most tempting target for economization is interest on the debt which would either require us to default on the debt which would be catastrophic or pay the debt down which would be extremely difficult.
  • The perennial: eliminate waste, fraud, and abuse. That has proven a lot harder than it sounds which has led some people to conclude that waste, fraud, and abuse are the purpose of our system.
  • Increase production. That has proven harder to accomplish than you might expect.

Raising the corporate tax rate is probably the worst alternative.

I also think that we need more basic reorganization of the federal government but that is a topic for another post. Do we really need 73 federal agencies to have armed enforcement officers and police powers?

I think at the very least we need to follow the law of holes. Stop digging or, in this case, stop cutting taxes. Beyond that spend on what we really want and need to spend on, measured by willingness to pay.

5 comments… add one
  • CuriousOnlooker Link

    One variable in all of this.

    Its mostly the tax reforms / cuts on individuals that expire in 2025. The corporate tax reforms were mostly permanent (the reduction in tax rates were mostly revenue neutral and paid for by eliminating tax loopholes).

    The tax foundation has a good primer. I see only the pass through exemption (199A) expiring and provisions related to international taxation (as we finish the move to a more territorial-based taxation system) affecting corporations.

    As much as it is a campaign topic, it is highly likely nothing changes since there is no forcing function like expiration. If Washington is divided after November, that’s guaranteed; if Republicans gain unified control, I suspect it would be token changes at most on the corporate side as most attention would to avoid raising taxes on individuals with the 2025 cliff; if Democrats gained unified control they would raise rates, but that’s the unlikeliest outcome for November because they are highly disfavored in retaining the Senate, never mind trying to win the House.

  • Drew Link

    “Economists and government agencies generally agree that shareholders ultimately bear much of the cost, with workers and consumers paying some, too.”

    I don’t think that’s true, and I’ve never seen anything that even remotely supports it. So his argument falls in ashes.

    Most assuredly the incidence of a corporate tax fall case by case – but mostly – on consumers, and even then it varies by consumer. Why is it that people don’t bat an eye when told that if the price of crude oil increases their price at the pump will as well? The retailer eats almost none of it. When agricultural commodities, grains and oils and eggs etc, rise, so do food prices in the store. Yet a cost input labeled “taxes” supposedly is a different animal.

    Let’s take a recent case where consumers are resisting mandated wage price hikes and causing fast food customers to stop purchasing. And fast food franchisees to automate or go out of business. The response varies by market participant. But if you taxed them you somehow think they would sit idly by?

    For some reason I simply can’t explain other than political biases, its a lesson that people can’t come to grips with. In most cases the market will tell you your price, inclusive of all cost inputs (and yes, taxes are a cost input). Profits generally have been competed down to where costs must be passed through or capital flees. The notion of a corporate piggyback sitting there in the tax code is an illusion. Fools gold.

    Those goods and services which have demand characteristics such that fat margins can be achieved while eating the cost input of taxes are few and far between. They are fairly unique goods. Inelastic in price. How many think that if Taylor Swift Inc suddenly had a /higher lower tax rate the price for her concerts would react accordingly?

    But food, clothing, shelter, etc sure would.

  • Drew Link


    “The highest effective tax rate in the United States has been around 21% which is where we are now”

    I’ve not seen that statistic, but I’ll accept it as some sort of aggregate as you almost always tend to be factual. But I’m here to tell you. I, and many people I know, have paid more. My guess its averaged down through special interests……… good luck with raising it.

    “Just issue ourselves credit.”

    Heh. And we get inflation, and then we reach debt (service) capacity. See Biden, Joe. Crappy green deals and such.

    Your last three dot points inform my views on government forever now. Government needs to be limited because there is no shortage of voters susceptible to free beer come-ons and politicians ready to promise them. Read: in this election, no cost cutters need apply.

    Waste, fraud and abuse is ubiquitous in government, and large corporate. Its not hard to find and deal with…….if you have resolve. (Hmmm. Looking for resolve…..) The real issue is: “keep your hands off my perks” and “I’ll vote for your perks if you will vote for mine.” Government, in particular, is totally incapable of handling this phenomenon. And they want to destroy a reformer. Hard to get a good slush fund gig like this you know. Any good corporate turnaround consultant knows you just wade in and ignore the squealing pigs claiming there is simply nowhere to cut. You simply dictate it, with deadlines, or inform your executives that if they don’t they can reprint the titles on their business cards with “ex-“. Then you make mid-course corrections.

    I could go down the same vein wrt output. Government is not here to help, but to hinder. How many have seen the stories about how the pathetic progress on installing EV charging stations has less to do with Pete Butigiege’s claims of technical issues than it does “equity” regulations and bureaucratic monkey business. Government at its “finest.”

    As I’ve said, one can bitch and moan about politicians all the want. But outside of dictators they serve at the will of the people. The voter is to blame. The left has converted us into a nation of government crackheads. It started with the Great Society. Wretch.

    Who knew FDR (the vaunted FDR) would set a precedent, and then a relative no nothing, pretty boy playboy son of a MA crook, and finally a despicable TX power politician would send the nation towards ruin.

    It takes a very long time to ruin a country. Especially one like the US.
    But it is happening right before our eyes. Except for FDR, all in my lifetime. May the people awaken.

  • Zachriel Link

    Drew: I, and many people I know, have paid more.

    Some do. If a married couple earns salaried income of $1 million *after* deductions, they will pay about 29% of that in federal income tax. However, most people in that income bracket have substantial deductions, so if they grossed $1.5 million *before* deductions, then their federal income tax rate would be 19% of the gross. Of course, many people in that income bracket have investment income, which is often taxed at a lower rate.

  • steve Link

    We should abolish the corporate income tax and replace it with something else. It doesnt generate that much revenue anymore as companies find ways to avoid paying. As part of that effort to avoid paying taxes lots of corruption, legal and illegal, is generated. Stuff that you can track like campaign donations and stuff that isn’t like a cushy job for the spouse/kids/other family or the dark PACs and think tanks.


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