What would a 28% corporate tax rate mean?

The President recently announced that he would favor lowering of the corporate tax rate to 28%. This would drop the rate from its current highest marginal rate of 35%, which is the highest of the developed countries. The 28% rate would be below the median for most developed countries and would, in theory, make the U.S. a more attractive place for businesses.

However, the change would not come without significant ramifications. Namely, the change in the corporate rate, but not the individual rate, would mean that the largest businesses in America would be paying rates much less than most small businesses. The reason for this is the pass-through type of taxation for most small businesses. The pass-through taxation results in the business profits being taxed at the owners’ marginal tax rates. With the imposition of the Affordable Care Act and recent changes to the tax law, this rate can be up to 43.5% at the federal level.
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If one considers favorable dividend rates for distributions, the majority of large companies and their shareholders would pay much lower rates than successful small business (especially considering FICA taxes.) I am all for lowering the corporate tax rate, but tax reforms need to be considered all across the Tax Code, and playing favorites with certain provisions is what caused it to be the jumbled mess it is today.

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