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U.S. Top Combined Integrated Tax Rate on Corporate Income Would Become Highest in the OECD

3 min readBy: Erica York

Under President Biden’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. plan, the United States would tax corporate income at the highest top rate in the industrialized world, averaging 65.1 percent.

First, the federal corporate tax rate would rise to 28 percent, which together with an average of state corporate tax rates would result in a 32.4 percent combined top corporate tax rate—highest in the industrialized world. As a second layer of tax on corporate income, the top federal marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. on capital gains and dividends would rise to 43.4 percent. Combined with average top state tax rates on capital gains and dividends and integrated with the combined top corporate tax rate, Biden’s proposals would produce a top combined integrated tax rate on corporate income of 65.1 percent—compared to 47.3 percent under current law.

In addition to federal level taxes, 44 states and D.C. have corporate income taxes and most states apply individual income tax rates to capital gains and dividends. The top combined integrated rate on corporate income reflects both the top entity level tax and the top shareholder level tax that apply at federal and state levels.

Biden corporate income tax proposals U.S. Top Combined Integrated Tax Rate on Corporate Income Would Become Highest in the OECD under Biden tax plan, top combined integrated tax rates on corporate income would average 65 percent under President Biden's tax plan

Top integrated rates would surpass 60 percent in 45 states and the District of Columbia. California and New Jersey would have top combined integrated rates of more than 70 percent. Nevada, South Dakota, Texas, Washington, and Wyoming would be tied for the lowest with rates of 59.2 percent—higher than the highest top rate in the OECD currently levied, by Ireland, at 57.1 percent.

On $100 of corporate profits, under Biden’s plan a firm would owe $32.35 in combined federal and state corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es. Assuming the remaining after-tax profit of $67.65 is received as a dividend and the investor faces the top marginal combined tax rate, they would owe $32.77 in combined federal and state dividend taxes. After both layers of tax, the investor receives $34.88 in after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize their earnings. from the original $100 in corporate profits.

A higher marginal tax rate on corporate income makes investment more costly, reducing the number of projects corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). s invest in. Lower levels of investment could lead to a smaller capital stock, which in turn can mean lower worker productivity, lower wages, and less economic output. A higher marginal tax rate on saving makes it more costly to save, reducing the amount of domestic saving. Lower levels of domestic saving would reduce domestic incomes, as more of the returns to U.S. investment would accrue to foreign owners.

Biden corporate income tax rate on corporate income (Biden tax corporate income proposal) Biden corporate profits

Table 1. Integrated Corporate Tax Rate under Biden’s Proposal
U.S. Average Under Current Law (unweighted) U.S. Average under Biden’s Plan (unweighted)
Corporate Profits $100.0 $100.0
Combined Corporate Income Tax (25.8% current law, 32.4% Biden’s plan) $25.78 $32.35
Distributed Dividend $74.22 $67.65
Combined Top Dividend Income Tax (29.0% current law, 48.4% Biden’s plan) $21.53 $32.77
Total After-Tax Income $52.69 $34.88
Integrated Tax Rate 47.3% 65.1%

Source: Tax Foundation calculations, state statutes, American Jobs Plan and American Families Plan Fact Sheets.

Table 2. Combined Top Integrated Tax Rate by State Under Biden’s Tax Plan
Combined Top Corporate Rate Combined Top Marginal Capital Gains Tax Rate Combined Top Integrated Tax Rate
Alabama 31.70% 46.42% 63.40%
Alaska 34.77% 43.40% 63.08%
Arizona 31.53% 49.40% 65.35%
Arkansas 32.46% 46.35% 63.77%
California 34.36% 56.70% 71.58%
Colorado 31.28% 47.95% 64.23%
Connecticut 33.40% 50.39% 66.96%
DC 34.26% 52.35% 68.68%
Delaware 33.94% 50.00% 66.97%
Florida 31.21% 43.40% 61.06%
Georgia 32.14% 49.15% 65.49%
Hawaii 32.61% 50.65% 66.74%
Idaho 32.99% 50.33% 66.71%
Illinois 34.84% 48.35% 66.34%
Indiana 31.78% 46.63% 63.59%
Iowa 35.06% 48.55% 66.59%
Kansas 33.04% 49.10% 65.92%
Kentucky 31.60% 48.40% 64.71%
Louisiana 32.55% 47.02% 64.27%
Maine 34.43% 50.55% 67.58%
Maryland 33.94% 49.15% 66.41%
Massachusetts 33.76% 48.40% 65.82%
Michigan 32.32% 47.65% 64.57%
Minnesota 35.06% 53.25% 69.64%
Mississippi 31.60% 48.40% 64.71%
Missouri 30.58% 48.80% 64.46%
Montana 32.86% 50.16% 66.54%
Nebraska 33.62% 50.24% 66.97%
Nevada 28.00% 43.40% 59.25%
New Hampshire 33.54% 48.40% 65.71%
New Jersey 36.28% 54.15% 70.78%
New Mexico 32.25% 46.94% 64.05%
New York 32.68% 54.30% 69.23%
North Carolina 29.80% 48.65% 63.95%
North Dakota 31.10% 45.14% 62.20%
Ohio 28.00% 48.20% 62.70%
Oklahoma 32.32% 48.40% 65.08%
Oregon 33.47% 53.30% 68.93%
Pennsylvania 35.19% 46.47% 65.31%
Rhode Island 33.04% 49.39% 66.11%
South Carolina 31.60% 47.32% 63.97%
South Dakota 28.00% 43.40% 59.25%
Tennessee 32.68% 43.40% 61.90%
Texas 28.00% 43.40% 59.25%
Utah 31.56% 48.35% 64.65%
Vermont 34.12% 52.15% 68.48%
Virginia 32.32% 49.15% 65.58%
Washington 28.00% 43.40% 59.25%
West Virginia 32.68% 49.90% 66.27%
Wisconsin 33.69% 48.76% 66.02%
Wyoming 28.00% 43.40% 59.25%
Unweighted Average 32.4% 48.4% 65.1%

Source: Tax Foundation calculations, state statutes, American Jobs Plan and American Families Plan Fact Sheets.

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