Increase Corporate Income Tax Rates by 1 Percentage Point

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of dollars 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015-2019 2015-2024
Change in Revenues 7 10 10 10 10 10 11 11 12 12 46 102

Source: Staff of the Joint Committee on Taxation.

Note: This option would take effect in January 2015. Estimates are relative to CBO’s April 2014 baseline projections.

Most corporations that are subject to the corporate income tax calculate their tax liability according to a progressive rate schedule. The first $50,000 of corporate taxable income (after deductions and exclusions) is taxed at a rate of 15 percent; income of $50,000 to $75,000 is taxed at a 25 percent rate; income of $75,000 to $10 million is taxed at a 34 percent rate; and income above $10 million is generally taxed at a rate of 35 percent. Although most corporate taxable income falls within the 35 percent tax bracket, the average tax rate (corporate taxes divided by corporate taxable income) is lower than 35 percent because of tax credits and the lower tax rates that apply to the first $10 million of income. This option would increase all corporate income tax rates by 1 percentage point. For example, the corporate income tax rate would increase to 36 percent for taxable income above $10 million.