Former President Donald Trump plans to push for a reduction in the federal corporate tax rate from 21 percent to 15 percent if he is reelected.
A 15 percent corporate tax rate could stimulate economic growth but would also reduce federal tax revenue at a time when debt and deficits are already high. This reduction in revenue could limit the ability to make other pro-growth tax changes in 2025. Therefore, if a lower rate is prioritized, it should be paired with reforms that broaden the tax base and eliminate penalties on investment.
TCJA
The 2017 Tax Cuts and Jobs Act (TCJA) permanently reduced the US corporate tax rate from 35 percent to 21 percent as part of a comprehensive tax reform. This shift moved the US from a worldwide system of taxing profits to a territorial system focused on domestic profits. The reforms enhanced US competitiveness, lowering the combined corporate rate (including state taxes) from 38.9 percent in 2017 to 25.8 percent in 2023. The current US rate is just below the OECD weighted average of 26.2 percent, though slightly higher than the OECD simple average of 23.5 percent.
A lower corporate income tax rate would make the US a more attractive place for business investment, creating economic opportunities for American households and reducing the incentives for businesses to move operations or profits overseas. Under Trump’s proposed 15 percent federal corporate income tax rate, the combined US rate would drop to 20.1 percent, just above Estonia’s combined rate of 20 percent. In the OECD, only Hungary, Ireland, and Luxembourg would have significantly lower rates. According to the Tax Foundation’s General Equilibrium Model, reducing the corporate income tax rate to 15 percent would increase long-term GDP by 0.4 percent, wages by 0.4 percent, and employment by about 93,000 full-time equivalent jobs. Economic research consistently shows that corporate taxes are among the most harmful revenue raisers, discouraging investment and reducing long-term wages for workers. Additionally, recent research confirms that the lower corporate income tax rate under the TCJA boosted investment, increased wages, and grew economic output.
**Long-Run Economic Effects of Reducing the Corporate Tax Rate to 15 Percent**
| Indicator | Change |
|—————————————|————–|
| Gross Domestic Product (GDP) | +0.4% |
| Gross National Product (GNP) | +0.4% |
| Capital Stock | +0.8% |
| Wages | +0.4% |
| Full-Time Equivalent Jobs | +93,000 |
*Source: Tax Foundation General Equilibrium Model, July 2024.*
Lowering the corporate tax rate to 15 percent would reduce federal revenue by $673 billion from 2025 to 2034 on a conventional basis. After considering positive economic feedback on federal revenues, the reduction would be about $460 billion over ten years. In 2034, revenue would decrease by $75 billion on a conventional basis but by a smaller $40 billion on a dynamic basis.
The revenue loss from moving to a 15 percent corporate rate would increase the debt-to-GDP ratio from 201.2 percent in 2065 to 202.6 percent, 1.4 percentage points higher than the baseline scenario.
**Revenue Effects of Reducing the Corporate Rate to 15 Percent (Billions)**
| Year | Conventional | Dynamic |
|——-|————–|————-|
| 2025 | -$78.0 | -$73.5 |
| 2026 | -$63.5 | -$54.3 |
| 2027 | -$66.6 | -$52.7 |
| 2028 | -$66.2 | -$48.6 |
| 2029 | -$61.6 | -$40.9 |
| 2030 | -$63.4 | -$39.6 |
| 2031 | -$63.4 | -$35.9 |
| 2032 | -$65.9 | -$36.6 |
| 2033 | -$69.4 | -$37.1 |
| 2034 | -$75.3 | -$40.3 |
| 2025-2034 | -$673.1 | -$459.5 |
A lower corporate tax rate would increase incomes by raising the after-tax return on investment for corporate equity owners, which includes many Americans across all income levels, and by boosting worker wages as capital investment enhances productivity. On average, after-tax income would rise by 0.8 percent on a conventional basis and by 1.1 percent on a dynamic basis.
**Distributional Effects of a 15 Percent Corporate Tax Rate (Percent Change in After-Tax Income)**
| Percentile | Income Threshold at Beginning of Band | Conventional, Long-Run | Dynamic, Long-Run |
|————-|—————————————|————————|——————-|
| 0% to 20% | $0 | 0.8% | 1.2% |
| 20% to 40% | $13,900 | 0.6% | 1.0% |
| 40% to 60% | $29,800 | 0.6% | 0.9% |
| 60% to 80% | $55,400 | 0.6% | 0.9% |
| 80% to 100% | $96,200 | 0.9% | 1.2% |
| 80% to 90% | $96,200 | 0.6% | 0.9% |
| 90% to 95% | $137,000 | 0.7% | 1.0% |
| 95% to 99% | $191,500 | 0.8% | 1.2% |
| 99% to 100% | $434,800 | 1.5% | 1.9% |
| Total | | 0.8% | 1.1% |
*Note: Income thresholds are in 2024 dollars and are determined by AGI with an adjustment for household size.
Impacts
A 15 percent corporate tax rate would be pro-growth but would not address the structural issues with today’s corporate tax base. Currently, businesses cannot fully recover their investment costs, as they must amortize R&D expenses over five (or 15) years, and bonus depreciation is being phased out. These investment penalties will blunt any positive effects of a corporate rate reduction, repeating mistakes from past tax reforms.
Policymakers should prioritize improving the tax base by making expensing for short-lived assets and R&D expenses permanent. This approach would generate more growth and less revenue loss than a lower corporate tax rate: long-run GDP would rise by 0.5 percent and employment by 106,000 full-time equivalent jobs, while tax revenue would fall by $561 billion conventionally and $326 billion dynamically. The long-run cost would be minimal on a conventional basis, as expensing primarily changes the timing of deductions, and it would slightly raise revenue on a dynamic basis.
Lowering marginal tax rates on investment, as proposed under Trump’s 15 percent corporate tax rate, would be pro-growth. However, lawmakers should also consider fundamentally improving and simplifying the business tax code through expensing and corporate integration. Raising tariffs to pay for tax cuts would be counterproductive, introducing more distortions and economic drag. Pro-growth tax reform can and should be achieved in a fiscally responsible manner, setting the federal government on a more stable and sustainable fiscal trajectory while boosting American competitiveness.