CRS

CRS Report on Issues in Corporate Tax Reform

The Government Accountability Office issued a report on issues in corporate tax reform. The corporate tax is the third-largest source of federal revenue. The report examined how corporate tax changes affect revenue and economic activity.

Tax Rate and Revenue Estimates

Studies estimating revenue decline with tax increases suggested a revenue-maximizing tax rate around 70%. This finding resulted partly from capital flow from abroad reducing the pretax rate of return as capital stock increased. The corporate marginal effective tax rate in the aggregate was estimated at 7.1% by a CRS model. Tax rates varied by asset type and debt finance method. Debt-financed investments faced an estimated subsidy of 18% of pretax profit, while equity-financed investment faced a tax of 19%. Some asset groups experienced negative tax rates, ranging from -15% for intangibles to 18% for certain structures.

Tax Revision Options Examined

Revisions could focus on reducing differences between corporate and noncorporate taxation. Options include providing partial expensing for all assets or disallowing some interest deductions. A cash flow tax is another potential change. International revisions could address profit shifting issues. The subsidy for research investment might be simplified and increased to better reflect spillover effects. Taxing large partnerships and Subchapter S corporations under the corporate tax could be considered.

Federal receipts were a steady share of GDP at 18% from 1951 to 2024. The corporate tax declined from 34% to 9.6% of federal receipts over this period. This decline occurred because corporate profits as a share of GDP grew. Legislative changes affected corporate tax revenues. These changes included lowering the top statutory corporate tax rate and altering depreciation rules. The top statutory rate fell from 52% to 34% between 1953 and 2017. The rate then dropped to 21% in 2018 and remained there. Depreciation changes delayed tax timing.

The report, Issues in Corporate Tax Reform (R49516), by Jane G. Gravelle, is dated November 13, 2026. Read it on Congress.gov.