Governments at the federal and state levels levy a corporate income tax (CIT) on business profits, which are calculated as revenues (what a company makes in sales) minus costs (the cost of doing business).
Businesses in the United States are broadly divided into two types: C corporations, which pay the corporate income tax, and pass-throughs, which include partnerships, S corporations, LLCs, and sole proprietorships that “pass” their revenue “through” to their owners’ income tax returns and pay the individual income tax.
While C firms must pay corporate income tax, the cost of the tax falls not only on the business but also on its consumers and employees through increased prices and lower earnings.
The United States, which decreased its federal corporate income tax rate to 21 percent as part of the Tax Cuts and Jobs Act of 2017, is one of the countries that have moved to tax corporations at rates lower than 30 percent over time due to their detrimental economic impacts.
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