A Graduated Corporate Income Tax to increase competition

History

Brackets and Rates

Corporate Tax Avoidance

Our Tax Proposal

We propose a graduated corporate income tax that increases revenues collected from large C corporations. It also deters mergers and encourages conglomerates to reduce their size through divestments. Like income taxes, the highest rates will only affect the most profitable corporations. It has a "standard deduction" of $50,000 to encourage Class C startups, and lower rates for the first $1 million in annual profits.

The revenue increase could be used to reduce the deficit our to replace premium revenue in our NOPSWIcare national healthcare proposal.

Strong anti-trust law and vigorous enforcement are the prime weapons against monopolies. A graduated corporate tax also favors competition, and it will generate revenue with large corporations paying the tab for a change.

The Current Landscape

All US publicly held C corporations pay a 21% income tax regardless of size.

72% of US businesses are sole proprietorships, but they account for only 6% of all business receipts. 8% of US businesses are partnerships, they earn 13% of all business receipts. 20% of US businesses are corporations, they generate 81% of all business receipts.^[1]

Corporations include public C corporations and private pass-through entities, chiefly S corporations, and LLCs. In 1980 C corporations earned almost twice the revenue of pass-through entities. The difference is much smaller now.^[2]

C corporations are less than 20% of all corporations however they include 200 of the 250 most profitable US corporations. It takes 2.9 billion in annual earnings to get on this list.^[3] The earnings of private corporations are generally not listed, but only 52 private US corporations have revenues over 10 billion dollars per year.^[4]

In addition to a corporate income tax, C corporation stockholders must pay a capital gains tax if they profit from the sale of C corporation stock. Dividends are also taxed.^[5]

Private corporations, in almost all cases, are pass through entities. Their profits are divided among the owners who report the profit as personal income. This article does not cover the taxation of privately held corporations.

Graduated Tax

A graduated corporate tax is like your personal income tax; higher levels of income are taxed at higher rates.

An example of how graduated corporation tax rates work:

Rates & Brackets:
15% for the first $1,000,000 in income
20% for income between $1,000,000 and $10,000,000
25% for income above $10,000,000.

Corporation A has an income of $20,000,000.
.15 x $1,000,000 = $150,000
.20 x $9,000,000 = $1,800,000
.25 x $10,000,000 = $2,500,000

Corporation A owes $4,450,000

History^[6]

Corporate income taxes have been collected in the US since 1913. The maximum rate was less than 14% until 1936. The war years brought higher rates and more complex rules. The top rates were near 50% until 1986 as we tried to pay down debts from WW2, Korea and Vietnam. Profits of $75,000 would land a corporation in a 40% bracket. From 1988 to 1992 corporations paid 34% on income over $75,000, plus an extra 5% on income from $100,000 to $335,000.

1993 – 2017 Rates:

First $50,000: - 15%
$50,000 to $75,000 - 25%
$75,000 to $100,000 - 34%
$100,000 to $335,000 - 39%
$335,000 to $10,000,000 - 34%
$10,000,000 to $15,000,000 - 35%
$15,000,000 to $18,333,000 - 38%
Over $18,333,000 - 35%

2018 - 2025 Rate

All taxable income - 21%

Brackets to Deter Mergers

The top historical brackets are all below 20 million dollars. The top 200 C Corporations have annual earnings between 2.9 and 152.4 billion dollars.^[7] To deter mergers and encourage divestment the tax brackets need to be in this range. We could also get fancy and consider market dominance of individual firms or small groups of corporations. This would be effective but complex.

Tax Brackets and Rates (1st Draft)

To encourage the formation of new public corporations we start with a 0% tax on the first $50,000 of profits. Profits in the $250,000 – $1,000,000 range are taxed at the current 21% rate. Profits in the 1.0 to 1.5 billion dollar range are taxed at 28%.

The tax rates increases are much more gradual in comparison to the 1993 to 2017 rates when all profits over 18,333,000 were taxed at a 38% rate. Therefore this rate schedule will not produce as much revenue as the 1993 to 2017 rates.

We have many brackets to ensure a consistent cost for market dominance and conglomeration. The rates do give small and medium sized corporations an advantage over the largest corporations.

No companies are in the 41% and 42% brackets at this time.

Brackets & Rates

First $50,000 - 0%
$50,000 - $250,000 - 15%
$250,000 - $500,000 - 18%
$500,000 - $1 Million - 20%
$1 Million - $2 Million - 21%
$2 Million - $5 Million - 22%
$5 Million - $25 Million - 23%
$25 Million - $100 Million - 24%
$100 Million - $250 Million - 25%
$250 Million - $500 Million - 26%
$500 Million - $1 Billion - 27%
$1 Billion - $1.5 Billion - 28%
$1.5 Billion - $2 Billion - 29%
$2 Billion - $3 Billion - 30%
$3 Billion - $5 Billion - 31%
$5 Billion - $8 Billion - 32%
$8 Billion - $12 Billion - 33%
$12 Billion - $18 Billion - 34%
$18 Billion - $25 Billion - 35%
$25 Billion - $35 Billion - 36%
$35 Billion - $50 Billion - 37%
$50 Billion - $75 Billion - 38%
$75 Billion - $100 Billion - 39%
$100 Billion - $150 Billion - 40%
$150 Billion - $250 Billion - 41%
Above $250 Billion - 42%

Corporate Tax Avoidance

Corporations are so good at minimizing their tax liabilities congress enacted a corporate alternative minimum tax (CAMT) of 15% starting in 2023.^[8] We will need to keep the CAMT. Upper income taxpayers have been subject to an AMT on personal income since 1979.

The technical term for corporate tax advantages is “corporate tax expenditures”. In 2024 corporate tax expenditures were $188 billion dollars, equal to 35% of all corporate income tax revenue ($530 billion dollars). What these numbers mean is debatable. The line between normal business expenses and tax expenditures is fuzzy. Also, we can see economic benefit in allowing businesses to expense equipment, machinery, research and development.

As we develop this proposal, we will take a careful look at which deductions should and should not be allowed. It is easy to say let’s get rid of all corporate tax loopholes, but one man’s loophole is another man’s vital incentive. The word loophole does not accurately describe most tax avoidance measures. A Lendesca article, 5 Proven Strategies to Reduce Your C-Corporation Tax Burden covers the basics. It may be boring, but it’s not evil.