Tax Policy, Fairness & The Economy - Part 8
- davidcogd
- Oct 20, 2024
- 3 min read
Previous Reports in this series presented Cogport Proposals for Personal and Capital Gains Tax Policy. This Report will cover the issue of Corporate Taxes.
Here is a Simplified History for Perspective on Rates on Corporate Taxes:
2000 - 2017 Corporate Tax Rates (based on income brackets):
15% on income up to $50,000
25% on income from $50,001 to $75,000
34% on income from $75,001 to $10,000,000
35% on income over $10,000,000
2018 – Current:
22% Flat Tax regardless of income level.
Prior to 2018, the U.S. had one of the highest statutory corporate tax rates in the world at the time (35%), but the effective tax rate for many corporations was often much lower due to deductions, credits, and tax strategies.
The most significant change to corporate tax rates in recent history came with the passage of the Tax Cuts and Jobs Act (TCJA), signed into law by President Trump in December 2017. The TCJA radically simplified the corporate tax structure and substantially reduced corporate tax rates.
The rates were reduced from a Progressive Tax with a top rate of 35% to a Flat Tax of21%. (The 35% rate was not competitive based on international comparisons.)
Comparison of Corporate Income and Tax Paid 2016 – 2022:
Year Total Income Reported Total Tax Paid
2016 $ 1.84 Trillion $ 297 Billion
2022 $ 2.77 Trillion $ 425 Billion
While the statutory corporate tax rate in the U.S. is 21%, corporations often pay an effective tax rate that is much lower due to the wide variety of deductions, credits, exemptions, and international tax strategies available to them. These legal mechanisms allow major corporations to significantly reduce their taxable income and, in turn, their overall tax liability.
The effect of TCJA has been a significant reduction in tax paid by Major Corporations.
Here is a comparison of Taxes for S&P 500 Companies Before and After TCJA:
Year Pre-Tax Income Tax Paid Effective Tax Rate
2016 $ 1.03 Trillion $ 297 Billion 29%
2022 $ 2.20 Trillion $ 380 Billion 17%
Increase 114% 28%
OBSERVATIONS
Major Corporations received a windfall that reduced Federal Revenue. The Fairness Issue is front and center. They now pay effective tax rates of 17% compared to 29% in 2016.
The current rate is below competitive levels in other major Countries. That is unnecessary.
The intent of TCJA was to spur corporate growth and create new jobs.
The S&P 500 companies have not made significant creation of new jobs through Direct Employment. They have increased employment in offshore locations.
Job Growth in the U.S. from 2016 – 2022 was below the average of the last 40 Years.
Conclusion: The TCJA of 2017 did not meet its goals in terms of growth in Federal Revenue or Employment.
PROPOSAL
Cogport proposes reinstatement of Progressive tax brackets and an increase of the top tax rate to 25%. (Before 2017 the top rate was 35%)
The proposed top rate is competitive with that of other Major Countries.
Here is an outline of suggested brackets for Corporations:
Tax Brackets - Income | Rate |
Up To $ 499,000 | 12% |
$ 500,000 - $ 999,999 | 14% |
$ 1 Million - $ 3 Million | 18% |
$ 3 Million - $ 10 Million | 25% |
Over $ 10 Million | 28% |
Based on 2024 Projections, this Proposal would increase Corporate Taxes by an estimated $ 138 Billion - an increase for Large Corporations and a Reduction for Small Companies
Here are Benefits of this Proposal:
Brings Balance back to the share of taxes paid by Major Corporations – Fairness.
Reduces Tax Burden on small companies to reinvest and grow their business with higher revenue and more jobs.
Most new jobs are created by start-up’s and small companies.
Reduces the Federal Deficit by $138 Billion per year.
SUMMARY
This post completes the Proposals for Changes in Taxes on Personal, Capital Gains, and Corporate Income.
The next and last post in this Series will summarize the effects on the goal of a Federal Balanced Budget.
David Hollaender October 20, 2024
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