The tax reform package that became law late last year had substantial impacts on American taxpayers. Major changes to the standard deduction, various credits and itemized deduction provisions, and individual tax rates left many people confused about whether they'd end up saving money or paying more on their individual returns. Yet there's one area where tax reform unambiguously resulted in lower taxes: the corporate tax rate.
Prior to tax reform, the U.S. had a corporate tax rate that was just under 39%. That consisted of a 35% federal tax rate on corporate income, with the remainder coming from state-level taxes that most U.S. states impose. That put the U.S. in the top three countries in the world in terms of corporate tax, according to figures last year from the Tax Foundation. Now, though, federal rates on corporate income have fallen from 35% to 21%. That puts the total federal and state burden at around 24%, just above the worldwide average of roughly 23%.
Still, even when you ignore tax havens with little productive economic activity, the new U.S. rate is far from the lowest level you'll find. Among major industrialized nations, Hungary leads the way, and Ireland isn't too far behind.
Proponents of tax reform argue that lower corporate tax rates will boost business profits, leading to greater levels of economic activity that should result in higher wages over time. Opponents argue that lower business tax rates will only concentrate more wealth in the hands of high-income taxpayers.
For many businesses, the biggest benefit of tax reform will come not from lower rates but rather from simplified calculations. With some complex tax breaks going away to help pay for lower tax rates, companies hope that the new tax regime will be easier to navigate as well as result in lower cost.
Offer from The Motley Fool: The 10 best stocks to buy nowMotley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the S&P 500!*
Tom and David just revealed their ten top stock picks for investors to buy right now.
*Stock Advisor returns as of June 4, 2018.
The Motley Fool has a disclosure policy.