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Federal Corporation Tax Oddity

Cup blog (coffee shop) by Brandon on 24 January 2008, tagged as taxes and irs

The U.S. federal tax brackets for corporations break down as follows:

  • first $50k - 15%
  • $50k - $75k - 25%
  • $75k - $100k - 34%
  • $100k - $335k - 39%
  • $335k - $10M - 34%
  • $10M - $15M - 35%
  • $15M - $18,333,333 - 38%
  • > $18,333,333 - 35%

It probably goes without saying, but what the flippin flip is going on with the rollercoaster rates? Is there something horribly wrong with a business making $100k-$335 that isn't wrong with making $99k or $336k? Or with making $15M-$18,333,333 but not $14.9M or $18.4M? I understand there have to be lines drawn somewhere, but a slow, steady, upwards progression would seem to be the obvious choice. Something like this, perhaps:

  • first $50k - 15%
  • $50k - $75k - 25%
  • $75k - $100k - 30%
  • $100k - $335k - 32%
  • $335k - $10M - 34%
  • $10M - $15M - 36%
  • $15M - $20M - 38%
  • > $20M - 39%

It's nice. It's clean. It's logical. It doesn't have the "$18,333,333" eyesore. What's not to like?

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1 Nerd-It - +
Any Idea Why? by VnutZ :: NR8

Have you come across any particular reasons why the humps are allocated that way?

Posted 24 January 2008, Hide, Reply
1 Nerd-It - +
Reason for the funny rates: by Anonymous :: NR0

The reason for the increased rates (i.e. $100k - $335k at 39% & $15M - $18,333,333 - 38%) is to deny corporations making more than those brackets the benefits of the lower brackets.

If the corporation makes over $355K, then all of its taxable income is taxed at 34% because of the 39% "catch-up" bracket. Likewise, if the corporation makes over $18.3M, then its taxable income is taxed at net 35% rate because of the 38% "catch-up" bracket.

Under the suggested progression, every company would be taxed at a different net rate (i.e. the really big guys would be taxed at a rate approaching 39%, while the moderately big guys would be charged at something like 38.4%). When you get up to the level of making financial transactions with the really big and moderately big guys, those tenths of a point really matter for purposes of leveraging, depreciation, etc. Whereas if all of your corporate customers will be subject to a 35% tax on additional income, you can set interest rates, payments, etc. at a level that is good for all of them.

- Christopher Bourell, talking about other much less interesting tax topics online at Tax and Business Law Blawg

Posted 07 March 2008, Hide, Reply