Just as people pay income tax on their earnings, companies are taxed on their net profits in the form of corporate tax. This tax is usually applied to businesses at federal, state, and local levels. In the US, the highest federal tax rate for businesses currently stands at 35%. Corporate state taxes vary from 0% to a whopping 10%. Some city taxes on corporations can even reach a maximum of 9%.
Corporate taxes are a contentious political issue. Similar to people who can claim deductions to reduce their overall tax obligations, businesses also have this privilege. A number of US-based businesses can claim enough deductions to pull down their total national tax liability to less than 25%.
Former President Obama sought to scrape off the numerous tax deductions and impose a corporate tax rate of 28%. Additionally, to stop the draining of businesses from the US to other countries, he proposed filling the gap between what a US corporation pays in tax in a foreign country and what they would have had to pay the US. For example, if a company operating in China is charged a 9% tax by China, but would have to pay 28% if based in the US, they would have to make up the shortfall of 19% to the US. This was purposed to lure more companies to stay within the US territory. As a further incentive, Obama suggested writing off any tax benefits that would support a company moving to another country.
There hasn’t been a significant overhaul of the corporate tax system since 1986; thus, many people believe one is due, particularly considering the technological progress and economic shifts over the past 25 years.
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