Key Findings

The Tax Cuts and Jobs Act lowered the top incorporated taxation rate on corpoprice income dispersed as dividends from 56.33 percent in 2017 to 47.47 percent in 2020; the OECD average is 41.6 percent.Joe Biden’s proposal to rise the corporate income taxation rate and also to taxes irreversible capital gains and also qualified dividends at ordinary revenue prices would rise the top integrated taxes rate on spread dividends to 62.73 percent, highest possible in the OECD.Income earned in the U.S. via a pass-with company is taxed at an average top combined statutory rate of 45.9 percent.Double tax of corporate revenue can result in such economic distortions as decreased savings and investment, a bias in the direction of specific organization develops, and also debt financing over equity financing.Several OECD countries have actually integrated corporate and also individual tax codes to remove or reduce the negative impacts of double tax on corporate revenue.

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In the USA, corpoprice earnings is taxed twice, when at the entity level and also when at the shareholder level. Before shareholders pay taxes, the company initially faces the corpoprice revenue taxes. A organization pays corporate earnings tax on its profits; thus, once the shareholder pays their layer of taxes they are doing so on dividends or funding gains distributed from after-tax profits.

The included taxes rate on corpoprice earnings reflects both the corporate earnings tax and the dividends or resources gains tax—the complete tax levied on corpoprice earnings. The Tax Cuts and also Jobs Act (TCJA) considerably reduced the tax burden on corpoprice income in the United States, which carried the U.S. integrated taxes rate on corporate earnings closer to the OECD average and hence boosted U.S. competitiveness.<2>

Double Taxation of Corpoprice Income in the United States

Under current regulation, income earned by C corporations in the United States is taxed at the entity level at a statutory federal rate of 21 percent, plus state corpoprice taxes. After paying the corpoprice income taxes, the firm deserve to either distribute its after-tax revenues to shareholders with dividend payments or reinvest or host its after-taxes revenue, which raises the worth of its stock and also leads to resources gains.

If the corporation distributes dividends, those are taxed at the shareholder level as high as 37 percent under the federal individual earnings tax price for ordinary dividends or as high as 20 percent for qualified dividends<3> (plus the 3.8 percent net earnings investment taxes for certain high-revenue taxpayers). States levy additional taxes on dividends.

Investors likewise pay taxes when stock appreciates and also is sold for a acquire. Capital gains taxation prices differ via respect to two factors: how lengthy the asset was held and also the amount of earnings the taxpayer earns. However before, resources gains are not taken into consideration taxable earnings till they are realized (once the ascollection is sold), permitting investors to defer taxation on their gains until realization.

As an instance, suppose that a corporation earns $100 of profit in 2020. It have to pay corporate revenue tax of $25.77 (federal and state unified rate of 25.77 percent), which leaves the corporation through $74.23 in after-taxes revenues. If the corporation distributes those income as a dividend, the revenue is taxed aacquire at the individual level at a peak price of 29.23 percent (federal and also state merged taxes rate on qualified dividends , leading to $21.70 in federal and state revenue taxes. Hence, last after-taxes income is $52.53, implying that the $100 in original corpoprice revenues encounters an included taxes price on corpoprice earnings of 47.47 percent.


Combined Tax Rates on Corporate Income and the Tax Cuts and Jobs Act

The TCJA considerably lowered the incorporated taxation price on corpoprice income, mainly as a result of the significant cut in the federal corporate revenue taxation rate from 35 percent to 21 percent. In 2017, the last year before the TCJA went into result, the peak integrated taxation price on corporate revenue distributed as dividends was 56.33 percent. In 2020, the height integrated rate stands at 47.47 percent, about 9 percentage points reduced than pre-TCJA.

Table 1. Top Combined Tax Rate on Corporate Income Distributed as Dividends in the United States Pre-TCJA (2017)Current Law (2020)
Corpoprice Profits$100$100
Corpoprice Income Tax (Combined Federal and also State Statutory Corporate Rate)-$38.91-$25.77
Distributed Dividends$61.09$74.23
Dividfinish Income Tax (Combined Federal and State Statutory Rate on Qualified Dividends)-$17.42-$21.70
Total After-Tax Income$43.67$52.53
Integrated Tax Rate56.33%47.47%

Source: Authors’ calculations, based upon OECD, “Tax Database: Table II.4. Overall statutory taxes prices on dividfinish revenue,” last updated September 2020,

Combined Tax Rates on Corporate Income versus Pass-via Income

Pass-through businesses, such as sole proprietorships, S corporations, and also partnerships, consist of the majority of businesses in the United States. At the federal level and in the majority of states, the revenue of these pass-through businesses is just topic to individual revenue taxation, and for this reason does not challenge corporate taxes.<4> In various other words, pass-with company earnings are “passed through” to their owners, that pay plain individual income tax on them.

The marginal taxes prices differ for pass-through firms depending upon the state where they operate, as claims taxation individual earnings in different ways.<5> Income earned by a pass-via company is taxed at an average top price of 45.9 percent, 1.6 portion points lower than standard C corporations.

Table 2: U.S. Top Incorporated Tax Rate on Corpoprice Income Distributed as Dividends and also on Pass-with Company Income in 2020 Classic C CorporationsPass-through Businesses
Entity-Level Tax25.8%0.0%
Individual-Level Tax29.2%45.9%
Total Tax Rate47.5%45.9%

Source: Authors’ calculations, based on Garrett Watchild, “Marginal Tax Rates for Pass-via Businesses by State,” Tax Foundation, July 15, 2020,

Note: Example assumes C corporation distributes dividends. Pass-through service is a partnership. Top marginal tax rates on pass-through earnings differ by state. The pass-via taxation rate shown right here is the UNITED STATE average merged federal and state top marginal tax price as of January 1, 2020.

Qualifying pass-with firms might usage Section 199A, frequently recognized as the pass-with deduction, to deduct 20 percent of their qualified company revenue from federal revenue taxation. However, the pass-through deduction is topic to constraints for firms earning above certain revenue boundaries that operate in a “mentioned business profession or business” (SSTB) and other guardrails that limit the size of the deduction. This suggests that many type of pass throughs are not eligible for Section 199A and also face optimal marginal income tax prices without it.

Incorporated Tax Rates on Corpoprice Income under Biden’s Tax Plan

President Joe Biden’s taxation arrangement has various federal taxes transforms.<6> The complying with taxation transforms would directly<7> influence the optimal statutory incorporated taxation rate on corpoprice income:

Increase in the statutory federal corporate revenue tax rate from 21 percent to 28 percent.Taxing long-term funding gains and also qualified dividends at the plain earnings taxation rate of 39.6 percent on income above $1 million.Table 3: U.S. Top Incorporated Tax Rate on Corporate Income Distributed as Dividends under Current Law and also under Biden’s Proposal Current Law (2020)Biden Plan
Corporate Profits$100$100
Corporate Income Tax (Incorporated Federal and also State Statutory Corporate Rate)-$25.77-$32.20
Distributed Dividends$74.23$67.80
Dividend Income Tax (Combined Federal and also State Statutory Rate on Qualified Dividends)-$21.70-$30.53
Total After-Tax Income$52.53$37.27
Integrated Tax Rate47.47%62.73%

Source: Authors’ calculations, based on OECD, “Tax Database: Table II.4. Overall statutory taxation rates on dividend revenue,” last updated September 2020,, and also Garrett Watchild, Huaqun Li, and also Taylor LaJoie, “Details and also Analysis of President Joe Biden’s Tax Plan,” Tax Foundation, Oct. 22, 2020,

Note: The calculations for Biden’s taxes arrangement assume a 28 percent federal corpoprice revenue tax price (32.2 percent if state corpoprice taxes are included) and a 39.6 percent ordinary federal individual income tax rate (45.0 percent including state taxes on dividends).

Taking these 2 transforms right into account, the top integrated taxes price on distributed dividends boosts from 47.47 percent under current legislation to 62.73 percent, which would be better than pre-TCJA and also the greatest in the OECD.<8>


Integrated Tax Rates on Corpoprice Income in the OECD

Many OECD countries—favor the United States—double-tax corpoprice income by taxing it at the entity and also at the shareholder levels. On average, OECD nations taxation corpoprice income dispersed as dividends at a price of 41.6 percent (46.8 percent if weighted by GDP) and also capital gains acquired from corporate income<9> at 37.9 percent (43.8 percent weighted by GDP). At 47.5 percent, the UNITED STATE height included tax prices are over the OECD average for both dividends and also capital gains.


For dividends, Ireland’s peak incorporated tax rate was greatest in the OECD, at 57.1 percent, adhered to by South Korea (56.7 percent) and Canada (55.4 percent). Estonia (20 percent), Latvia (20 percent), and Hungary (22.7 percent) levy the lowest rates. Estonia and also Latvia’s dividfinish exemption device implies that the corporate earnings taxation is the just layer of tax on corpoprice income dispersed as dividends.

For resources gains,<10> Chile (55 percent), Denmark (54.8 percent), and also France (52.4 percent) have the highest possible integrated rates in the OECD, while the Czech Republic (19 percent), Slovenia (19 percent), and Slovakia (21 percent) levy the lowest prices. Several OECD countries—namely Belgium, the Czech Republic, Luxembourg, New Zealand also, Slovakia, Slovenia, South Korea, Switzerland, and Turkey—carry out not levy capital gains taxes on permanent funding gains, making the corpoprice tax the just layer of taxation on corporate earnings realized as irreversible capital gains.

Distortions Created by the Double Taxation of Corporate Income

The interactivity of entity and also shareholder level taxes on corpoprice earnings has actually significant ramifications on both business decisions and also the in its entirety economic climate.

Reduced Investment

A greater marginal taxes price on both corporate income and also investment revenue provides investments even more costly, reducing the number of projects corporations invest in. This leads to reduced levels of investment and also a smaller capital stock in the in its entirety economic situation. A smaller sized resources stock suggests reduced worker productivity, reduced weras, and also sreduced economic growth.

Shift to Non-corporate Firm Forms

The double taxes on corporate revenue deserve to also distort the organizational develop of businesses. Unprefer conventional C corporations, pass-with businesses, such as S corporations, partnerships, and single proprietorships, only challenge one layer of taxation, as there is no entity level taxes (at the federal level and also in the majority of states). All profits from these entities are instantly passed with to their owners, that pay the individual revenue taxes.

The reduction in the corpoprice tax price enacted with the TCJA has mainly aligned the taxes rate on corpoprice earnings and also pass-via earnings that does not qualify for the Section 199A deduction. However, businesses that perform qualify for the Section 199A deduction face a lower taxes price than C corporations, creating a bias in the direction of pass-with businesses.

Debt over Equity

When a corporation wants to fund a new task, it deserve to either finance it with equity (concern of new shares or use of kept earnings) or it deserve to borrow money. The existing tax code treats debt financing more favorably than equity financing. Specifically, tbelow are 2 layers of tax on equity financing and also only one layer of tax on debt financing, as a result of the deduction for net interemainder price.

Suppose a corporation worries brand-new stock to raise money to purchase a device. When this investment earns a profit, the corporation needs to pay the corpoprice earnings tax. It then needs to compensate the original investors, so the corporation distributes the after-tax earnings as dividends. The investors then have to pay taxation on these dividends. This equity-financed project nets two layers of tax, one at the corpoprice level and also one at the shareholder level.

Alternatively, the corporation could finance the exact same investment by borrowing money. When the corporation earns a profit from a debt-financed investment, it requirements to pay the corporate earnings taxes on its profits. But before the corporation pays its corpoprice taxes, it demands to pay its lender back a section of what it obtained plus interest. Under present regulation, corporations can deduct interest payments they make to lenders versus their taxable income. Thus, earnings obtained from the debt-financed investment execute not challenge a corpoprice level taxation on the percentage of the profit that is paid earlier in interest. The lender then receives the interest as earnings and needs to pay taxation on it. The debt-financed project just nets a single layer of taxation at the debt holder’s level.

Due to this inequitable treatment of debt and equity in the tax code, the rate of rerotate on debt-financed tasks, all else equal, is greater. This motivates corporations to borrow even more than they otherwise would in the absence of the double taxes on equity investment.<11>

Corpoprice Integration

Corpoprice integration standardizes the taxes of organization revenue across company develops and also methods of financing by integrating the corpoprice and individual tax codes. Tbelow are many ways in which corpoprice integration deserve to be designed. Australia and Estonia carry out examples for credit imputation and also dividend exemption systems, respectively.


Australia integrates their corpoprice and individual earnings taxes via a taxation credit imputation. Both the corporation and the shareholder pay part of the corporate earnings taxes, but the shareholder is provided a taxation credit to counter the taxes already phelp by the corporation. In the end, corpoprice income is taxed at the marginal revenue tax price applied to its shareholders.


Estonia integprices its corpoprice and individual revenue tax code by having actually a complete dividend exemption at the shareholder level. This system of integration levies only one layer of taxation on corpoprice income at the corporate level when dividends are dispersed. When the shareholder receives dividends from the corporation, tright here is no extra tax due.<12>


The UNITED STATE taxes code—as with many OECD countries’ tax systems—double-taxes corpoprice income: when at the corporate level and then again at the shareholder level. This creates a significant taxation burden on corporate revenue, which increases the expense of investment, motivates a change from the typical C corpoprice develop, and incentivizes debt financing.

The TCJA significantly lowered the incorporated tax rate on corpoprice income in the United States. Biden’s proposal to rise the corporate income tax price and to taxes irreversible funding gains and qualified dividends at plain earnings taxes prices would increase the height integrated taxes rate above pre-TCJA levels, making it the highest in the OECD and undercutting American economic competitiveness.


Top Incorporated Tax Rates on Corporate Income in OECD Countries, 2020OECD CountryStatutory Corporate Income Tax RateDividendsCapital Gains (a)Top Personal Dividend Tax RateCombined Tax on Corporate Income (Dividends)Top Personal Capital Gains Tax RateCombined Tax on Corporate Income (Capital Gains)
Czech Republic19.0%15.0%31.2%0.0%19.0%
Netherlands (b)25.0%25.0%43.8%30.0%47.5%
New Zealand28.0%6.9%33.0%0.0%28.0%
Slovak Republic21.0%7.0%26.5%0.0%21.0%
United Kingdom19.0%38.1%49.9%20.0%35.2%
United States (c)25.8%29.2%47.5%29.2%47.5%

Source: OECD, “Tax Database: Table II.4. Overall statutory taxes prices on dividfinish earnings,” last updated September 2020,; PwC, “Fast Charts: Capital gains taxes (CGT) prices,”; authors’ calculations.


Integrated taxes rates are calculated as follows: (Corpoprice Income Tax) + <(Distributed Profit – Corporate Income Tax) * Dividends or Capital Gains Tax>.

(a) In some countries, the funding gains taxation price varies by type of ascollection sold. The funding gains taxes rate offered in this report is the price that uses to the sale of detailed shares after a prolonged duration of time. While the incorporated taxation rate on dividends captures submain taxes, this may not be the instance for all integrated taxes prices on resources gains due to data availability.

(b) In the Netherlands, the net ascollection worth is taxed at a flat price on a understood annual rerotate.

(c) The integrated optimal tax rate on corpoprice income dispersed as dividends or as resources gains includes both federal and state dividend and also capital gains taxes. For state funding gains tax rates, the weighted average of state dividfinish taxation rates (5.4 percent) offered by the OECD was used, as all other than one state taxed resources gains the exact same as dividends in 2020. (New Hampshire imposes a taxation on dividends yet not on funding gains.)

<1> In some nations, the resources gains taxes price varies by form of ascollection sold. The funding gains tax rate used in this report is the rate that uses to the sale of provided shares after an extensive duration of time. While the incorporated taxes price on dividends captures submain taxes, this might not be the instance for all incorporated tax rates on capital gains because of information availcapability. The UNITED STATE included taxes rate on funding gains captures both federal and also state taxes.

<2> Robert Bellafiore, “The Lowered Corporate Income Tax Rate Makes the U.S. More Competitive Awide,” Tax Foundation, May 2, 2019,

<3> Unless otherwise listed, this report concentrates on the taxes levied on qualified rather than plain dividends. Whereas ordinary dividends are taxable as plain earnings, qualified dividends that fulfill particular requirements are taxed at the lower funding acquire prices (e.g., irreversible capital gains organized for more than one year). See Internal Revenue Service (IRS), “Topic No. 404 Dividends,”

<5> For pass-with tax prices by state, view Garrett Watkid, “Marginal Tax Rates for Pass-via Businesses by State,” Tax Foundation, July 15, 2020, The average U.S. pass-with taxes price shown in this report represents the basic average of all UNITED STATE states’ merged federal and state peak marginal taxation rates as of January 1, 2020.

<6> A comprehensive overwatch and also financial and distributional analysis of Biden’s taxes plan can be found in Garrett Watson, Huaqun Li, and Taylor LaJoie, “Details and also Analysis of President Joe Biden’s Tax Plan,” Tax Foundation, Oct. 22, 2020,

<7> Biden’s arrangement likewise has restoring the Pease limitation on itemized deductions for taxable incomes above $400,000, which, unified via alters to the state and also local taxes (SALT) deduction, would change marginal and also average efficient taxes rates. (It would not, yet, influence the top statutory price.) See Jared Walczak, “Top Rates in Each State Under Joe Biden’s Tax Plan,” Tax Foundation, Oct. 20, 2020,

<8> For permanent funding gains, the federal incorporated taxes price would boost from 43.4 percent to 59.05 percent. This, yet, does not encompass state-level capital gains taxes (each state taxes funding gains differently). The integrated optimal taxation rate on corporate earnings spread as dividends consists of both federal and also state dividfinish taxes.

<9> In some nations, the capital gains tax rate varies by type of ascollection sold. The funding gains taxes price used in this report is the price that applies to the sale of detailed shares after a prolonged duration of time. Some OECD countries’ incorporated taxes prices on funding gains may not include taxes levied at the submain level because of data availability. U.S. optimal incorporated taxes prices on funding gains include state-level funding gains taxes.

<10> Ibid.

<11> Under the TCJA, the deduction for net interest cost is generally restricted to 30 percent of income prior to interemainder, taxes, depreciation, and amortization (EBITDA) with 2021, and thereafter restricted to 30 percent of revenue prior to interest and also taxes (EBIT). Although limiting interemainder deductions has narrowed the debt-predisposition installed in the tax code, it has not got rid of it.

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<12> More details on the trade-offs between the various creates of corporate integration have the right to be found in Scott Greenberg, “Corporate Integration: An Important Component of Tax Redevelop,” Tax Foundation, Apr. 21, 2016,