Double Taxation of Corporate Income Results in Tax Rate of 56.6%, Second Highest in the Developed World

February 24, 2015

Double Taxation of Corporate Income Results in Tax Rate of 56.6%, Second Highest in the Developed World

Washington, DC (Feb 24, 2015)—Corporate income in the United States is taxed at a rate of 56.6 percent, due an antiquated and poorly structured feature of America’s corporate income tax system, according to a new report from the nonpartisan Tax Foundation. The U.S. tax code taxes corporate income twice, once at the corporate level through the corporate income tax and again at the individual level through the individual income tax on dividends and capital gains. According to the report, this fundamental flaw in the tax code is damaging to U.S. businesses, but practical solutions to the problem do exist.

The report’s key findings include:

  • The double-taxation of corporate profits reduces investment, encourages corporations to borrow money to finance investment, and encourages structuring as a pass-through business.
  • Short of reforming the entire U.S. tax code, integrating the corporate and individual income tax could eliminate the double taxation of corporate income.
  • Both Australia and Estonia, among many other developed countries, integrate their corporate and individual income tax codes.

One of the ultimate goals of fundamental tax reform is to eliminate many of the current biases in the tax code caused by the double taxation of corporate income, and integrating the individual and corporate tax code is a reasonable step towards fixing this problem.

Many countries in the OECD have fully or partially integrated corporate tax systems. There are several ways to integrate the corporate tax code, but all of them ultimately result in a single layer of taxation on corporate income.

“By combining the corporate and individual income tax, policymakers would ensure that corporate income is only taxed once, increasing the incentive to invest and reducing the incentive to avoid the second layer of taxation by restructuring or taking on additional debt to finance projects,” said Tax Foundation Economist Kyle Pomerleau. “This would eliminate the current biases in the tax code and encourage investment and economic growth.”

Full study: Eliminating Double Taxation through Corporate Integration

Media Contact:
Richard Borean
Manager of Communications
Tax Foundation
202-464-5120
borean@taxfoundation.org

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.

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The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.