NCPA - National Center for Policy Analysis

The U.S. Corporate Income Tax: A Primer for U.S. Policymakers

July 22, 2015

The U.S. corporate income tax is ripe for change -- that's what you will believe, anyway, if you follow the news as it relates to this subject. There is concern on the part of both major parties about the fact that the U.S. rate is the highest among OECD countries and that the U.S. policy of taxing corporations on a global, rather than a territorial, basis is causing trillions of dollars in corporate profits to be stranded in foreign banks.

James Angelini and David Tuerck of the Beacon Hill Institute estimate that taxes paid on dividends would add 17 percent to the effective C-corporation tax rate. Assuming a 13 percent C-corporation effective average rate, and the effective average tax rate, including taxes on dividends and capital gains, is 30 percent.

Based on their analysis, Angelini and Tuerck recommend an abolition of the corporate income tax because the tax:

  • Discourages corporate investment.
  • Operates to shrink the economy.
  • Falls in part on workers.

Under a flat tax, businesses would expense and, in that fashion, untax net investment. Under the "FairTax," the government would eliminate all business taxes and tax only retail sales of goods and services, thus also, in effect, untaxing net investment.

Source: James P. Angelini and David G. Tuerck, "The U.S. Corporate Income Tax: A Primer for U.S. Policymakers," The Beacon Hill Institute and the National Center for Policy Analysis, July 2015.

 

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