The effective corporate income tax rate is now the lowest in decades, and the U.S. government’s dwindling revenue streams are raising concerns among some policy experts.
More than 700 profitable businesses paid 10.4% in federal income taxes last year, according to a recent report from the Institute on Taxation and Economic Policy (ITEP), a progressive think tank, or less than half the statutory federal corporate income tax rate of 21%. More than 250 of those companies paid effective tax rates below 7%, and 114 companies, including Tesla, Walt Disney, United Airlines and DoorDash, paid no federal income taxes, the report said.
ITEP calculated these tax rates based on analyzes of annual financial reports filed with the Securities and Exchange Commission, not IRS data, which lags behind SEC filings.
Corporate tax revenues have fallen under the Trump administration, which ushered in a series of tax breaks intended to spur capital investment even as corporate profits have soared. Treasury Department data released earlier this month showed a reduction of about 15 percent, or about $70 billion, in corporate tax revenue, to $381 billion in the fiscal year ended Sept. 30. The drop comes amid a more than 25% reduction in corporate tax revenue since 2024, when former President Joe Biden was in office.
Declining corporate tax revenue has some policy experts worried about a growing federal deficit and the U.S. government’s ability to finance itself. The Congressional Budget Office has projected that President Donald Trump’s One Big Beautiful Bill Act (OBBBA) would add $3.4 trillion to the federal deficit over the next decade, the result of a $4.5 trillion decrease in revenue offset by a $1.1 trillion decrease in spending. Meanwhile, corporate profits soared to a record $4.7 trillion over the trailing 12 months through mid-2026, a 17% increase from the previous 12-month period.
Rather than blaming the more than 100 businesses that pay nothing in federal income tax, it’s the hundreds of businesses that pay a reduced rate that pose the biggest threat to tax revenue, according to Matt Gardner, a senior researcher at ITEP and co-author of the report. The 706 companies saved a total of $198 billion last year thanks to corporate tax subsidies, while the 114 companies that paid nothing accounted for just a fraction of that sum.
“There’s a real concentration of profits at the top, and when these companies pay less than 21%, that’s really what’s blowing a hole in our corporate tax laws right now,” Gardner said. Fortune. “Their profits were so enormous that their tax avoidance has a far greater impact on the ability of the federal government to operate than the zero-tax corporations do.”
Businesses benefit from corporate tax benefits
Although corporate tax breaks have been in effect for decades, Trump has taken steps in both terms to reduce these taxes, starting in 2018 when he lowered the federal corporate income tax rate from 35% to 21%. The OBBBA, passed last July, extended the 21% rate and also made several reliefs permanent while adding others, including immediate accounting for domestic research and development costs, as well as a 100% bonus depreciation for qualifying commercial property acquired after January 2025.
These two pauses are the ones that businesses have benefited from the most, Gardner noted. According to the report, the four companies receiving the largest tax breaks – Alphabet, Microsoft, Amazon and Meta – collectively saved $46 billion through these two opportunities, taking advantage of the exemptions to help finance massive AI infrastructure development.
Meta, in particular, has come under scrutiny over how it took advantage of the R&D tax break. The tech company reportedly classified its AI data centers as experimental “pilot models,” according to reports cited by the senators, which would allow it to qualify for the tax break. Senators Ron Wyden (D-Ore.), Sheldon Whitehouse (DR.I.), Elizabeth Warren (D-Mass.), Catherine Cortez Masto (D-Nev.), Maggie Hassan (D-N.H.), Ben Ray Luján (D-N.M.) and Peter Welch (D-Vt.) wrote a letter to Meta CEO Mark Zuckerberg earlier this month demanding answers by Oct. 31 on how investments for which Meta claims tax breaks differ from routine costs for data equipment. centers.
“The federal research credit can be a useful and necessary tool to support our nation’s innovation economy and cutting-edge research,” the senators wrote. “Subsidizing the construction of your AI data center doesn’t come close to meeting this standard.”
Meta said it is one of the largest R&D investors in the United States, investing more than $200 billion over the past five years and $57 billion last year.
“Unlike traditional data centers, AI-powered data centers are inherently new and require extensive testing and experimentation that cannot be simulated in order to get the design and construction right,” a Meta spokesperson said. Fortune in a statement. “This is precisely the kind of domestic investment that Congress encouraged when it established these tax incentives decades ago. »
Gardner expects this trend of heavy reliance on depreciation and R&D bonuses to continue due to permanent features of the tax law implemented by Trump.
“There is every reason to expect that this will become the new normal going forward, unless the next Congress, the next presidential administration, decides to reverse them,” he said.
The Arguments Against Corporate Income Tax
One school of thought favoring higher corporate taxes argues that increased revenue can reduce the deficit, which can lower interest rates and accelerate borrowing and the growth that comes with it. But other policy experts have criticized the corporate tax increase, arguing that higher taxes would discourage investment and stifle America’s competitiveness on the global stage, ultimately weakening opportunities for economic growth.
Adam Michel, director of tax policy studies at the libertarian Cato Institute, argued in an April Substack article that the R&D credit has enjoyed bipartisan support since its introduction in 1981 as part of the Economic Recovery Tax Act. The law, dubbed the Kemp-Roth tax cut for Rep. Jack Kemp (R-N.Y.) and Sen. William Roth (R-Del.), was part of then-President Ronald Reagan’s efforts to build a coalition of more conservative Democrats to support his spending cuts. He argued that depreciation tax relief would enhance economic growth, as it would reduce immediately taxable income but not the nominal amount of taxes paid, thereby giving businesses a greater opportunity to invest.
The tax breaks “do not reveal a scandal,” Michel wrote. “This is a list of popular bipartisan policies. The companies that use them are doing what the law wants, often for good reasons.”
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