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 depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco 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.