When we attended the Christmas party for one of the small fabrication companies we represent in December 2018, the owner announced that employee bonuses would be less this year because his corporate tax rate went up from 15% to 21%. As manufacturers sales representatives, we wondered if other small corporations were being similarly hurt.<\/p>\n
When President Trump signed\u00a0the\u00a0Tax Cuts and Jobs Act<\/a> on December 22, 2017, business and economic experts lauded the reduction in corporate tax rates as one way to help American companies be more competitive in the global marketplace. The National Association of Manufacturers and the U. S. Chamber of Commerce had long complained that the U. S. had the highest corporate tax rate in the world at 39.1 percent, which the Tax Foundation<\/a> explained was \u201ca combination of our 35 percent federal rate and the average rate levied by U.S. states.\u201d<\/p>\n Doing research, I found an article titled \u201cTrump’s Tax Plan and How It Affects You\u201d on The Balance website<\/a>.\u00a0 I learned that the Act permanently cut the\u00a0corporate tax rate\u00a0from a progressive rate of 15 percent to as high as 35 percent down to a flat tax rate of 21 percent beginning in\u00a02018, the lowest\u00a0since 1939.\u00a0Besides C corporations, the corporate tax rate also applies to LLC’s who have elected to be taxed as corporations.<\/a>\u00a0This rate does not apply to S corporations, partnerships or sole proprietorships, which are taxed at the personal tax rate, ranging from 10% to the new limit of 37%.<\/p>\n Most people didn\u2019t realize that while the previous tax rate for corporations started at only 15%, and went up to 35 percent, the average \u201ceffective rate was 18.6\u00a0percent,\u201d according to a 2017 report by the Congressional Budget Office<\/a>.<\/p>\n At the Small Business & Entrepreneurship Council\u2019s website,<\/a> it states that \u201caccording to the Census Bureau\u2019s Statistics of U.S. Businesses<\/a> for employer C corporations in 2015, 99.0 percent of all business are small businesses\u201d with fewer than 500 employees as defined by the Small business Administration; \u201c96.4 percent of firms had fewer than 100\u201d and \u201c84.9 percent of firms had fewer than 20 employees.\u201d<\/p>\n This means that the majority of C corporations paid tax rates well below the maximum tax rate of 35%. Therefore, the flat tax of 21 percent replacing is hurting low-earning corporations that were paying a lower rate and benefiting high-earning wealthy corporations. <\/strong><\/p>\n The Balance website also states: \u201cThe Act\u00a0allows companies to repatriate the $2.6 trillion<\/strong> they hold in foreign cash\u00a0stockpiles. They pay a one-time tax rate of 15.5 percent on cash and 8 percent on equipment.\u201d<\/p>\n