Corporate Tax Payments Will Fall This Year. Here’s Why That’s Good News.

As corporate earnings season begins, headlines will highlight companies reporting little to no federal income taxes under the new 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. law. The likely reaction: outrage and confusion. But smaller corporate tax bills are not evidence of new giveaways or loopholes. They are evidence the tax code is finally treating investment the way it should.

Last year, President Trump enacted the One Big Beautiful Bill Act (OBBBA). For individuals, it avoided an automatic tax hike on 62 percent of filers by making Trump’s 2017 tax cuts permanent. For businesses, among its many changes, the OBBBA provided permanent 100 percent bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. for most investment and expensing for research and development (R&D).  

Although not perfect, the law’s expensing provisions fixed a major flaw in the tax code.