Proposed Increase of the U.S. Corporate Tax Rate From 21% to 28%
The Federal government’s 2023 fiscal year that begins on October 1, 2022 includes a proposal to increase C Corporations tax rate from 21% to 28%. The 28% tax rate would be effective for taxable years beginning after December 31, 2022.
The C Corporation income tax rate for taxable years beginning before January 1, 2023, and ending after December 31, 2022, would be equal to 21% plus 7% times the portion of the taxable year that occurs in 2023.
REASONS FOR CHANGE
The administration believes that raising the corporate income tax rate:
- Is an administratively simple way to raise revenue to pay its infrastructure proposals and other longstanding fiscal priorities.
- Can expand the progressivity of the tax system and help reduce income inequality: before the Tax Cuts and Jobs Act of 2017, C Corporations were taxed at a graduated tax rate. And most companies were taxed at a marginal and average rate of 35%.
- Would result in no additional Federal income tax burden on U.S. persons.: this is because a significant share of the effects of the corporate tax increase would be borne by foreign investors.
- Is a primary mechanism for taxing most of the income from capital investments in domestic C Corporations: under current law, most of this income is untaxed by the U.S. government at the shareholder level.
- Would increase multinational corporations’ effective income tax rate: under current legislation, many multinational corporations pay effective tax rates that are far below 21%, due in part to low-taxed foreign income.
Other changes
The government is considering:
- Keeping the global intangible low-taxed income (GILTI) deduction constant.
- Raising the GILTI rate in proportion to the increase in corporate rate, with a new GILTI effective rate of 20%, applied on a jurisdiction by-jurisdiction basis.
The proposal would require congressional enactment to become law. However, the federal tax legislation process has stalled and many tax professionals are wondering whether we will get any tax legislation in 2022.