The “Inflation Reduction Act” spends hundreds of billions of dollars on President Biden’s wish list. It pays for it with big new taxes on big corporations. It imposes a new 15% minimum tax. Supposedly this is a tax on the “wealthy.” It isn’t. 

On January 21, 2018, the nominal federal corporate income tax rate dropped from 35% to 21%. The corporate income tax rate in North Carolina dropped gradually from 6.9% in 2011 to 2.5% in 2019. A reduction to zero is already law for the state as of 2028. 

Gov. Roy Cooper and President Joe Biden carelessly equate taxation on corporations with taxation on the wealthy. But they still dole out billions in tax giveaways to their favorite corporations, like Apple, or their favored sectors, like windmills.

Myth: Corporations pay taxes

In effect, corporations only collect taxes that they pay on behalf of shareholders. A corporation is an aggregation of individual humans. Most businesses do not pay corporate income tax at all. They are “pass-through” entities: Subchapter S corporations, limited liability companies, partnerships, trusts, or estates. The income is “passed-through” to the humans, who then pay tax on the income. Forty million Americans report “pass-through” income. 


Myth: The corporate income tax is like a personal income tax. 

Most businesses in America are “pass-through” entities. Their profits are taxed once. For other corporations, the income tax is double taxation. The same economic activity is taxed once at the corporate level and then taxed a second time when distributed to shareholders as dividends.   

Before the 2017 federal tax reform and before 2011-2019 at the state level, consider two investors in different income brackets for 2011 and 2019.   

In 2011 a wealthy taxpayer whose investment in a corporation earned $1000 would have paid a combined tax of over $600 on those earnings. By 2019, that dropped to about $500. 

In 2011 a working poor taxpayer whose investment in her retirement fund earned $1000 would have paid a combined tax of $350, by 2019 that dropped to about $200, a $50 larger reduction for the poor than the wealthy. 

Whether rich or poor, earnings from a corporate investment are taxed to the individual human being at a higher, not a lower rate, since those earnings are taxed twice.  

Myth: The tax paid by a large corporation is only a tax on shareholders.

A reduction in the tax rate partially reduces the price of goods and services to consumers. If I bought a cheeseburger in 2011 for $5.00, 35 cents of that paid the federal corporate income tax, and 7 cents paid the state corporate income tax – 42 cents per cheeseburger. The share of that cheeseburger in 2019 for federal corporate income tax was 21 cents and 2 ½ cents at the state level. – 23 ½ cents. It does not matter whether the person who eats that cheeseburger is rich or poor. It is the same tax embedded in each cheeseburger. That is a highly regressive tax. It is a tax that is hidden from the burger buyer. The 18 ½ cent reduction in that hidden tax on each cheeseburger impacts the poor more than the rich. The new 15% minimum tax is a tax increase on most corporations that matter. It is a tax increase on the individual human beings who buy cheeseburgers, whether rich or poor.

To the extent that there is a competitive market for labor (now on steroids) wages rise faster to the extent that the corporate income tax is reduced and will rise more slowly since corporate income tax is increased under the new law. 

Immediately after-tax reform at the state level, several major corporations announced bonuses or other significant benefits for employees: Bank of America, Comcast, AT&T, Boeing, Fifth Third Bank, BB&T, PNC, and Wells Fargo, each crediting tax reform. An OECD study found that between thirty percent (30%) and seventy percent (70%) of the corporate income tax is effectively paid by workers. Joe Biden’s friendly economists claim it is more like 25%.

Most utilities are privately owned that pay corporate income tax. The Utility Commission required lower utility rates for consumers due to tax reform. Higher corporate income tax in the “Inflation Reduction Act” will raise utility bills for electricity, water, and sewer and will cost the poor more per unit than the rich. That is extremely regressive.

Electric power meter measuring power usage. Watt hour electric meter measurement tool with copy space.

A part of the effect of a corporate income tax rate reduction is the distribution of net profits. Some of that net profit of the corporation goes to wealthy shareholders. If the corporate income tax rate is reduced, then dividends may increase. Bur half of American households are invested in mutual funds, retirement funds, or otherwise in the stock market. The largest corporations have millions of shareholders, both rich and poor. Ultimately, dividends are taxed at the individual’s tax rate, a high rate for the wealthy, and a low rate for the working poor. That is the only part of the corporate income tax that falls disproportionately on the wealthy.

The corporate income tax is not a progressive tax. It is a regressive “add-on” tax to the progressive individual income tax rates. This month’s spending spree by President Biden and Congressional Democrats is primarily financed with taxation that is regressive in its actual operation.

Myth: The “Inflation Reduction Act” improves our economic position in the world economy.

Effective January 1, 2018, the nominal federal corporate income tax rate went from 35% to 21%. Thirty five percent was the highest in the industrialized world; 21% is in the middle of the pack. The new 15% “minimum tax” will raise the effective tax on many corporations in varying amounts.

Money flows easily across national and state borders. While the United States has many competitive advantages, its extremely high corporate income tax rate was a major impediment to investment.Raising the effective rates nationally for corporate income tax will reduce America’s competitive edge.

Similarly, when North Carolina’s corporate income tax rate was 6.9% in 2011, it was the highest of all our bordering states. At 2.5% in 2022, it is the lowest in the nation (of states that impose a corporate income tax). This change has been a competitive advantage for North Carolina for economic development. It is one of the reasons why North Carolina ranks at the top of national business rankings. The law that reduces the rate to zero by 2028 is a major boon to economic development. 

President Biden’s careless economics lets him claim that taxes on the poor and middle class (up to $400,000/year) were not raised, although the actual effect of his new law is the same as a regressive tax rate increase. The homeless, the unemployed, and others with low income still eat cheeseburgers and pay the same embedded corporate income tax on that burger as Michael Bloomberg and Elon Musk.

A footnoted electronic version of this article is available at:

Paul Stam is an attorney practicing in Apex. He served 16 years in the NC House, the last 10 years as Republican Leader and Speaker Pro Tem.