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tax cuts and jobs act
End Trump's Chaotic Tariffs and Raise Corporate Tax Rates Instead
The Administration’s Across-the-Board Tariffs Harm the Economy and Burden Households With Low and Moderate Incomes
Beginning in February 2025, the administration announced and implemented sweeping taxes on imported goods, known as tariffs, justifying them in part on the need to raise revenues. The Supreme Court struck down some of these tariffs, but the administration responded by imposing a new set of replacement tariffs under a different authority. These tariffs are still highly significant: as of March 10, the effective tariff rate was 12% compared with 2.6% in early 2025. Underneath this average rate is a complex and highly variable tariff regime that differs considerably by country and type of product and has been subject to frequent changes over the past year.
Tariffs can play a useful role in trade policy as a way to remedy specific trade issues—such as the need to ensure domestic production of goods related to national security—but are highly flawed as a general revenue source because of the economic distortions they create and the burden they place on families with low and moderate incomes. To a much greater extent than other types of taxes, tariffs distort, or alter, households’ and businesses’ decisions about purchasing, investment, and savings in ways that can make them worse off. For example, high tariffs on imported steel encourage US companies to ramp up steel production instead of investing capital and labor into other sectors that might, absent the tariff, generate higher returns.
If tariffs are expanded to replace all or a substantial share of the federal income tax, most households, and especially those with the lowest incomes, would face a massive tax increase, while wealthy households would be substantially better off.
Tariffs can harm the domestic economy in other ways. By raising the price of imported business inputs (that is, goods that are used to make other goods, such as steel used in automobiles and buildings, including apartment buildings), goods manufactured in the US are often more expensive because of tariffs. Even producers of purely domestic goods may increase prices because of reduced competition from tariffed foreign goods. Moreover, the tariffs’ chaotic and haphazard implementation over the past year has created an uncertain environment that is harmful to businesses trying to decide when, whether, or where to invest.
Other countries may also impose their own tariffs on US products (or otherwise retaliate), which can reduce US exports and harm domestic markets, as happened when China paused purchases of US soybeans last year.
Tariffs are regressive because they place a heavier burden on households with low and moderate incomes than on high-income households compared to other taxes. If made permanent, the current tariffs would reduce after-tax incomes of households with incomes in the bottom 10% of the income distribution by about 1.4%, compared with 0.4% for households with incomes in the top 10%, according to Yale Budget Lab. For households struggling to afford to meet their basic needs, this tariff-driven income reduction could have serious consequences: Yale estimates that the administration’s tariffs last year would lead to hundreds of thousands more people living in poverty, with millions more seeing their incomes fall further below the poverty line. Higher tariffs would increase poverty more severely.
Economists generally agree that tariffs are a regressive tax, while federal income taxes are progressive. For example, tariffs are imposed on goods at a flat rate meaning that everyone purchasing those goods pays the same rate regardless of income, instead of a progressive rate structure that ensures high-income households pay higher rates than households with lower incomes.
For this reason, if tariffs are expanded to replace all or a substantial share of the federal income tax, most households, and especially those with the lowest incomes, would face a massive tax increase, while wealthy households would be substantially better off.
Importantly, this calculation ignores the fact that it would be impossible for tariffs to generate enough revenue to replace the income tax: The personal income tax alone generates $2.4 trillion in annual revenue while estimates suggest tariffs could realistically raise a maximum of only about $500 billion.
The Corporate Income Tax Is a Far More Efficient and Progressive Revenue-Raising Option
Increasing revenues by raising the corporate income tax rate would be a far better approach than the president’s harmful tariff scheme. Raising the corporate tax rate—which Republicans slashed in 2017—would raise substantial revenue in a progressive and efficient manner.
While tariffs are a tax on imported goods, including business inputs, the corporate income tax is a tax on corporations’ profits, or their net income after deducting expenses. Notably, a substantial (and growing) share of the corporate tax base consists of so-called “excess profits”—that is, profits above what a firm needs to justify an investment. Taxing those profits is efficient because it would not deter the firm from making break-even investments because they would remain profitable. A study by tax scholar Edward Fox estimated that as much as 96% of the corporate tax fell on excess profits from 1995 to 2013.
More of the corporate tax is falling on excess returns because the amount of those excess profits is rising, in part, due to declining competition and increasing concentration among corporations, which give businesses “market power” that allows them to raise their prices well above their costs. Another reason is that changes in tax policy have effectively exempted more of firms’ normal return on investments from taxation, meaning the corporate tax has applied more to excess profits. For example, the 2017 tax law allowed firms to immediately deduct the full cost of equipment purchases rather than deduct those costs gradually as the value of the investment declines—a change last year’s Republican megabill both made permanent and expanded.
Given the nation’s need for more revenues, policymakers should embrace sound, progressive policies like raising the corporate tax rate.
Some may argue that higher corporate taxes would simply be passed on to consumers through higher prices, but the corporate tax—as a tax on profits—allows businesses to deduct and exempt from taxation key input costs, especially labor. This means that it generally does not have a direct impact on firms’ pricing decisions. The traditional economic concern about raising corporate taxes is not that they raise prices, but that they can reduce investment and thus affect productivity and workers’ wages. Yet, because they often (and increasingly) fall on excess profits, they are less likely to reduce investment and are a relatively efficient source of revenue.
Raising the corporate tax rate would also make the tax system more progressive. Both conventional scoring authorities and outside experts (e.g., the Joint Committee on Taxation, Congressional Budget Office, Department of the Treasury, and the nonpartisan Tax Policy Center) agree that the corporate tax is predominately paid by shareholders and the owners of capital income. The ownership of corporate shares—as with other kinds of wealth—is highly concentrated among households with high net worth; households with net worth in the bottom 50% hold just 1% of equities. Because white households are overrepresented among the wealthy while households of color are overrepresented at the lower end of the wealth distribution due to racial barriers to economic opportunity, raising the corporate tax rate can also help reduce racial wealth inequality.
Evidence from the 2017 tax law supports the view that corporate tax cuts primarily benefit high-income households—and, inversely, that corporate tax increases would fall on those same households. The law cut the corporate tax rate dramatically from 35% to 21%, with people at the top of the income distribution receiving the vast majority of the resulting gain. One study found that people with incomes in the top 10% of the income distribution received 80% of the 2017 law’s corporate tax cuts benefit.
Moreover, raising the corporate tax rate has the potential to raise significant revenues; raising it to 28%—halfway between the current rate and the pre-2017 tax rate—would raise around $1 trillion over 10 years—enough to replace about two-thirds of the current tariffs.
Given the nation’s need for more revenues, policymakers should embrace sound, progressive policies like raising the corporate tax rate, while abandoning harmful tariffs and resoundingly rejecting the president’s disastrous proposal to replace income taxes with massive tariffs.
35 Richest Republicans Set to 'Line Their Own Pockets' While Taking Food, Healthcare From Millions
"While pushing for more tax cuts to line their own pockets," the report notes, "many of the richest Republican members are pushing for draconian cuts to the very social programs that millions of their constituents rely on," including federal student aid, Medicaid, and the Supplemental Nutrition Assistance Program (SNAP).
According to Accountable.US, "6.3 million constituents represented by the top 10 richest senators and 2.1 million constituents represented by the top 25 richest representatives use SNAP and are at risk of losing their food security."
Additionally, "9.2 million constituents represented by the top 10 richest senators and 4 million constituents represented by the top 25 richest representatives use Medicaid and are at risk of losing critically needed healthcare," the report warns.
The watchdog also found that 3 million and 930,000 federal student aid grants were given to constituents within these lawmakers' states and districts, respectively, and proposed cuts threaten "to price students out of pursuing higher education."
The richest Republican senator, by a significant margin, is Sen. Rick Scott of Florida, who made his money from the nation's for-profit healthcare system before serving as governor of his state. As of mid-May, his estimated net worth was around half a billion dollars, according to the new report.
Nine of the 10 senators—all but Sen. John Curtis (R-Utah)—"sit on five committees instrumental in shaping budget reconciliation," the report points out, as the upper chamber takes up the package following its passage in the House last week.
"As Trump's Big Beautiful Bill moves to the Senate, we must make it clear: There is nothing 'beautiful' about giving huge tax breaks to billionaires while cutting healthcare, nutrition, and education for working families. It is grossly immoral and, together, we must defeat it," Sen. Bernie Sanders (I-Vt.), who has been traveling the country for his Fighting Oligarchy Tour,
said on social media Tuesday.
Just two House Republicans, Reps. Thomas Massie of Kentucky and Warren Davidson of Ohio, joined Democrats in opposing the bill, and GOP Rep. Andy Harris of Maryland, chair of the House Freedom Caucus, voted present.
All other Republicans present voted in favor of the bill—even though, as Accountable.US detailed last week, a dozen wrote to GOP leadership last month saying that they represent "districts with high rates of constituents who depend on Medicaid," so they "cannot and will not support a final reconciliation bill that includes any reduction in Medicaid coverage for vulnerable populations."
The watchdog stressed that six of those Republican lawmakers—Reps. Rob Bresnahan of Pennsylvania, Rob Wittman of Virginia, Jen Kiggans of Virginia, Young Kim of California, Juan Ciscomani of Arizona, and Jeff Van Drew of New Jersey—could directly benefit from the expansion of the "pass-through deduction" in the package.
Meanwhile, Tuesday's report calls out the richest House GOP members, led by Rep. Vern Buchanan of Florida, and Rep. Darrell Issa of California, who are each worth nearly a quarter-billion dollars.
"The One Big Beautiful Bill Act is the definition of promises made and promises kept," Buchanan, vice chair of the House Ways and Means Committee, said in a statement after last week's vote. "This is a commonsense, pro-growth, pro-family, America First bill. We will not stop fighting until we get this bill across the finish line and to the president's desk."
Of the top 25 Republicans in the House, by estimated net worth, 19 sit on five key panels, the report states.
"The richest Republicans in Congress are happy to raise costs for millions of their own constituents and jeopardize healthcare for millions more, while they get a tax cut for themselves," said Accountable.US executive director Tony Carrk in a statement. "The Trump tax scam is a grift for the ultrarich, including those who are in charge of passing this legislation themselves, and a betrayal to hardworking Americans everywhere."
The $75 Billion Reason These 5 Corporations Had to Help Fund Trump's Inauguration
The tax break allowed companies to immediately deduct the expenses characterized as research and development in the year they are incurred rather than deducting those expenses over several years like other investments. Repeal of this tax break was one of the few revenue-raising provisions in the Trump tax law, and it was supposed to slightly offset the costs of the law’s corporate tax cuts.
Restoring the R&D provision would reduce the collective effective tax rate paid by these five companies for this three-year period by almost two-thirds, from 20% to 7%.
The Trump tax law repealed the R&D expensing break starting in 2022, replacing it with a less generous rule requiring R&D expenses to be deducted over five years. In the previous Congress, the House of Representatives passed a bill reinstating the break retroactive to 2022. That bill did not advance in the Senate, but now that Republicans control the House, Senate, and White House, there is every reason to believe the proposal will be considered again.
Proponents of the tax break make a very questionable argument that it encourages companies to engage in research that benefits society. But reinstating this tax break retroactively obviously cannot accomplish this because it would merely reward companies for research and development investments they already made. The $75 billion saved by these companies would be a pure windfall that does not require them to do anything going forward.
The 2024 House-passed bill that would have reinstated this tax break was controversial, but that legislation at least offset the costs by shutting down a different tax break that was being fraudulently claimed by unscrupulous accountants on behalf of businesses that were not actually eligible for it. That legislation also included a badly needed expansion in the Child Tax Credit. Republicans in the Senate blocked that bill because they hoped they could later enact tax legislation that would be even more generous to corporations—as they are now trying to do.
The five tech companies profiled here have disclosed that in the three years the R&D tax increase has been in place, their federal income tax bills increased by at least $75 billion as a result of this provision.
These companies have reaped huge windfalls from Donald Trump’s 2017 tax law, which included a reduction in the statutory corporate tax rate from 35 to 21%. They also benefit from special breaks and loopholes allowing them to pay effective tax rates that are even lower than the statutory rate of 21%. And they will pay even lower effective tax rates if President Trump and Congress reinstate the R&D tax break.
For example, the federal corporate income taxes that Apple reports it paid over the past three years come to 18% of its reported income during that period. That is another way of saying Apple paid an effective tax rate of 18% during the previous three years. If Congress retroactively repeals the R&D tax change, the company’s three-year tax rate would be cut in half, to 9%.
Meta’s three-year tax rate on $133 billion of U.S. income would drop from 15% to just 4%. And the three-year tax rate of Elon Musk’s Tesla would drop from the 0% the company currently reports to negative 22%.
Restoring the R&D provision would reduce the collective effective tax rate paid by these five companies for this three-year period by almost two-thirds, from 20% to 7%.
The research and development provision at stake in this year’s tax debate was one of the few revenue-raisers embedded in the 2017 law and served to make the plan overall appear somewhat less costly. Repealing this tax change is a stealthy way to make the corporate tax cuts even bigger than they were when enacted in 2017, and it would allow the five companies profiled here to shelter two-thirds of their U.S. income from federal income tax.
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