Key Takeaways:
- Biden proposes raising the corporate tax rate to 28%, reversing Trump’s 2017 cut.
- Republicans consider cutting the rate further, with some eyeing 15%.
- Each percentage point shift in the tax rate impacts over $130 billion in revenue.
What Happened?
The U.S. corporate tax rate stands at 21%, a significant variable in the 2025 tax debate. President Biden aims to raise this rate to 28%, partially reversing the 2017 Republican tax cuts. Conversely, Republicans are considering further reductions, potentially lowering the rate to 15%. Donald Trump, the presumptive Republican nominee, supports a 20% rate.
Each percentage point change in the tax rate represents over $130 billion in tax revenue over a decade, creating a trillion-dollar gap between the two parties’ positions.
Why It Matters?
This tax debate holds substantial implications for corporate profits, federal revenue, and your investments. Raising the corporate tax rate to 28% would place the U.S. among the highest in major economies, potentially discouraging domestic investment. Procter & Gamble CEO Jon Moeller warns, “Why would we want to put U.S. companies in an uncompetitive situation?”
Conversely, a reduction to 15% could boost profits and shareholder returns, reminiscent of the 2017 tax cuts that lowered the rate from 35% to 21%. Lael Brainard, White House National Economic Adviser, argues that corporate profits are at record highs, and higher taxes are necessary to address this imbalance.
What’s Next?
The outcome of the November elections will significantly influence the corporate tax rate. If Democrats gain power, expect a push towards a 28% rate, aligning with Biden’s vision. On the other hand, a Republican victory could see the rate slashed to as low as 15%, with Trump advocating for a 20% rate.
Both parties will continue to debate the broader tax policy, including individual tax rates and the child tax credit. Investors should closely monitor these developments, as changes in the corporate tax rate will directly impact company valuations, investment strategies, and overall market performance.
