January 5, 2018

Congress Rings in the New Year with a New Corporate Tax Cut

Key materials

For years, America’s corporate income tax rate has been significantly higher than other Organisation for Economic Co-operation and Development (OECD) nations. This has provided an incentive for businesses to locate in other nations instead of the United States. Recent legislation reforming the tax code aims at addressing this. As a result, federal corporate tax rates have been lowered to 21 percent, a level more competitive with other OECD nations. Many factors, including industry-specific ones, can play a role in deciding where to locate a business. However, tax rates are a factor regardless of the industry.

This tax reform increases the competitive position of American companies by lowering their costs of doing business. This reduction in costs frees up capital, placing it in the hands of businesses for investments such as purchasing new equipment, hiring new employees, and raising wages. Further, it increases the incentive to start new businesses that would previously have been marginally unprofitable, or not profitable enough to invest in, by reducing one of the overhead costs from what it was in 2017.