Adam N. Michel and Joshua Loucks
President-elect Donald Trump campaigned on lowering the US corporate income tax rate to 15 percent. He made the same request in 2017 when Republicans passed their tax cuts, but Congress only cut the federal rate to 21 percent—down from the worldwide high of 35 percent.
Data from the Organisation for Economic Co-operation and Development (OECD) suggest that cutting corporate taxes in 2025 will likely not result in steep revenue losses. Additionally, more competitive business taxes will make America an even more attractive destination for global investment and workforce expansion. Congress should deliver on Trump’s promise or eliminate the tax entirely.
Lower Corporate Tax Rate, Higher Revenue?
Lower corporate income tax rates encourage investment, increase productivity, expand job opportunities, and attract internationally mobile corporate profits. In many cases, cutting the corporate tax rate does not reduce revenue; it may increase it.
When Ireland cut its corporate tax, revenue increased. Its corporate tax rate went from 40 percent in 1994 to 12.5 percent by 2003. Since 1993, Irish corporate tax revenue as a share of the economy has increased by 75 percent (2.1 percentage points).
In 2023, Ireland raised about $5,000 per person in corporate tax revenue, more than double the OECD average.[1] Figure 1 shows that the US only raised $1,700 per person despite a much higher tax rate of 25.6 percent (federal plus state taxes). This is not exactly a fair comparison because 60 percent of US business income is taxed under the individual tax system. Adjusting for this difference, US corporate revenues are still below Ireland’s but likely above the OECD average.
Ireland’s commitment to a low corporate tax rate and other business-friendly policies have made it a haven for global businesses looking to escape the high taxes worldwide. According to one estimate, as much as 86 percent of Ireland’s corporate tax revenue is paid by foreign multinationals.
Foreign investment has brought more than just fiscal benefits; The Wall Street Journal reports that “around 15% of the Irish workforce is employed by just under 1,000 U.S. companies,” and OECD data show that over the past two decades, average annual wages in Ireland have grown faster than the OECD average and more than twice as fast as those in neighboring UK.
The Irish story of lower tax rates and higher revenue is consistent across the OECD.
Figure 2 shows that the average OECD corporate tax revenue as a share of GDP increased from 1.9 percent in 1981 to 3.6 percent in 2023.[2] Revenue increased as the average corporate income tax rate across the same countries was cut in half, falling from about 48 percent in the early 1980s to 24 percent in 2023. There is also no consistent relationship between individual country tax rates and revenue collection.
Since 2017, when the US cut the corporate tax by 14 percentage points, corporate tax revenue as a share of GDP has increased by 40 percent (from 1.5 percent to 2.1 percent in 2023). Revenue per capita also nearly doubled from $870 to $1,700.
The experience of Ireland, the United States, and the rest of the OECD bloc confirms estimates that find the top of the corporate tax Laffer Curve is in the mid-20 percent range and falling over time. It’s likely lower for the most economically sensitive industries. Under one optimistic scenario, Martin Sullivan shows how a 15 percent US federal corporate tax rate (about 20 percent with state taxes) could be close to revenue neutral. Policymakers should always set tax rates below the peak revenue-maximizing rate.
The Best Way to Target Domestic Manufacturing Is Expensing
During the campaign, Trump suggested that a lower corporate tax rate should only be available to “companies that make their product in America.” Such targeted tax cuts are a mistake.
The US tax code used to have a targeted deduction for manufacturers called the qualified domestic production activities deduction (DPAD). The TCJA repealed the deduction in favor of lower tax rates for all businesses and expensing, because DPAD was widely understood as ineffective and economically inefficient. It primarily subsidized existing activity, was difficult to target the intended manufacturers, and was associated with declining domestic employment. Historically, companies such as Apple, Disney, and Microsoft, along with tobacco company Altria Group, were the primary beneficiaries of the subsidy.
Pairing Trump’s lower corporate tax rate with full expensing for all US investment and neutral cost recovery for investment in structures will meet his goal of substantially increasing investment for the most capital-intensive firms, such as domestic manufacturing.
Cut the Corporate Rate As Low As Possible
At a combined rate of 25.6 percent, the United States’ corporate tax rate is still above the non-US OECD average of 24 percent.
Figure 3 shows the 2024 combined corporate tax rates for all 38 OECD countries. Trump’s proposal to cut the federal corporate income tax rate from 21 percent to 15 percent would lower the United States’ combined state and federal corporate tax rate to 19.6 percent. This would give America a lower corporate income tax rate than all but 5 OECD countries, put the US in the bottom third of all countries in the world, and undercut China’s 25 percent rate (China is a non-OECD member).
Because corporate taxes are so economically destructive, lowering or eliminating the tax altogether may not have the fiscal consequences some fear. Trump and Congress should build on the success of the TCJA by repealing targeted subsidies, like those in the Democrat’s Inflation Reduction Act, and replace them with broad-based business tax cuts that will make America the most attractive place in the world to do business.
[1] Average for 29 countries with consistent data from 1994. Excludes Norway.
[2] Average for 18 countries with consistent data from 1981. Excludes Norway.