The history of U.S. corporate taxation runs from a 1% federal excise in 1909, through wartime peaks with combined marginal rates in the low 90s, to a 52% postwar standard, a 34% rate after the 1986 reform, and the flat 21% rate in force today, now paired with a 15% minimum tax on the largest companies’ reported profits. Each major change tracked a war, a court decision, a recession, or the pressure of global competition.
Where Corporate Taxation Started
The federal government first taxed income during the Civil War under the Revenue Act of 1862, which also created the Commissioner of Internal Revenue.1Internal Revenue Service. Historical Highlights of the IRS That tax reached individuals, not corporations as separate entities, and Congress repealed it after the war.
A constitutional problem then blocked any easy return. The Constitution requires “direct taxes” to be apportioned among the states by population, and in 1895 the Supreme Court held in Pollock v. Farmers’ Loan & Trust Co. that a tax on income from property was an unapportioned direct tax and therefore unconstitutional.2Justia. Pollock v Farmers Loan and Trust Co
Congress found a way around Pollock in 1909. It framed the Corporation Tax Act not as an income tax but as an excise on the privilege of doing business in corporate form, with net income serving as the measuring stick. The rate was a flat 1%.3Internal Revenue Service. Corporation Income Tax Brackets and Rates, 1909-2002 The Supreme Court upheld that design in Flint v. Stone Tracy Co. on March 13, 1911, confirming that the levy was an excise on doing business in a corporate capacity and did not need to be apportioned.4Justia. Flint v Stone Tracy Company That ruling made the 1909 Act the real foundation of modern corporate taxation.
The 16th Amendment and a True Income Tax
Ratification of the 16th Amendment on February 3, 1913, cleared away the apportionment issue by giving Congress power to tax incomes “from whatever source derived, without apportionment among the several States.”5National Archives. 16th Amendment to the U.S. Constitution – Federal Income Tax (1913) The Revenue Act of 1913 replaced the 1909 excise with a straight corporate income tax at the same 1% rate.
World War I ended the modest era quickly. The Revenue Act of 1917 set a base corporate rate of 2% plus a 4% war surcharge and added an excess profits tax aimed at businesses earning above prewar levels.6Library of Congress. Revenue Act of 1917 Rates drifted down through the 1920s and then rose again during the Depression.
The Revenue Act of 1935 replaced the flat rate with graduated brackets so larger corporations paid a higher percentage.7United States Senate Finance Committee. Conference Report – Revenue Bill of 1935 The Revenue Act of 1936 went further, taxing undistributed profits to push corporations to pay out earnings as dividends. That levy was unpopular with business and was scaled back within a few years, but it set a pattern: economic pressure prompting Congress to use the corporate tax as a lever for broader policy.
Wartime Peaks and the Postwar 52%
World War II turned the corporate tax into the federal government’s primary revenue engine. The Revenue Act of 1942 raised the top corporate rate to 40% on income above $50,000.3Internal Revenue Service. Corporation Income Tax Brackets and Rates, 1909-2002 Congress also revived and broadened the excess profits tax. Stacked together, the regular corporate tax and the excess profits tax could produce combined marginal rates in the low 90s on certain income. No period in American history has taxed corporate earnings more heavily.
The excess profits tax was repealed after the war, briefly reinstated during the Korean War from 1950 to 1953, and then dropped again. Cold War defense spending kept the underlying rate elevated. Through the 1950s and into the early 1960s the top statutory corporate rate stayed at 52%.3Internal Revenue Service. Corporation Income Tax Brackets and Rates, 1909-2002
Investment incentives began to enter the code in the same period. The Internal Revenue Code of 1954 introduced accelerated depreciation methods, letting companies recover the cost of equipment and buildings faster than under the traditional straight-line approach.8Office of the Law Revision Counsel. 26 USC 167 – Depreciation The Revenue Act of 1962 added the Investment Tax Credit, allowing companies to subtract 8% of the cost of new equipment directly from their tax bill on top of normal depreciation.9United States Senate Finance Committee. Brief Summary of the Revenue Act of 1962, H.R. 10650 The Economic Recovery Tax Act of 1981 later added a research and experimentation credit equal to 25% of qualifying incremental spending.10U.S. General Accounting Office. Use and Effectiveness of the Research and Experimentation Tax Credit
The 1986 Reset: Lower Rate, Wider Base
By the early 1980s, the accumulated preferences had opened a wide gap between statutory and effective rates. The top rate stood at 46%, but many profitable companies paid far less, and reports of major corporations paying no federal income tax created bipartisan pressure for a rewrite.3Internal Revenue Service. Corporation Income Tax Brackets and Rates, 1909-2002
The Tax Reform Act of 1986 cut the top corporate rate from 46% to 34% and paid for it by repealing the Investment Tax Credit, scaling back accelerated depreciation, and stripping out dozens of other preferences.11Congress.gov. H.R.3838 – Tax Reform Act of 1986 The goal was revenue neutrality: a broader base could raise about the same amount of money at a lower headline rate. To keep companies from using surviving preferences to zero out their bills, the Act also introduced a corporate Alternative Minimum Tax. Companies calculated liability under a parallel, less generous set of rules and paid the higher figure.
The 1986 framework proved durable. The Omnibus Budget Reconciliation Act of 1993 nudged the top rate up to 35%, but the low-rate, broader-base structure held for the next three decades.3Internal Revenue Service. Corporation Income Tax Brackets and Rates, 1909-2002
Pass-Throughs Shrink the Corporate Tax Base
A parallel structural shift changed what the corporate tax actually reaches. In 1958, Congress created the S corporation through the Technical Amendments Act, letting small businesses elect pass-through treatment so profits flow to owners’ individual returns and skip the corporate-level tax. Uptake stayed modest under the original restrictions.
The 1986 reform changed that overnight. By dropping the top individual rate to 28% while setting the corporate rate at 34%, Congress made pass-through status more attractive than corporate taxation for many businesses.12Internal Revenue Service. S Corporation Elections After the Tax Reform Act of 1986 The repeal of the General Utilities doctrine gave C corporations another reason to convert. Congress later loosened S corporation eligibility rules, and partnerships and limited liability companies added more pass-through options. By the 2000s, most business entities in the United States were organized as pass-throughs, which means today’s 21% statutory corporate rate applies to a shrinking share of total business income.
The 2017 Cut and New International Rules
By the early 2000s the 35% U.S. rate was an outlier among developed nations. Other OECD countries had been cutting for years, and the gap encouraged American multinationals to reincorporate abroad through inversions while keeping operations in the United States.
The Tax Cuts and Jobs Act of 2017 cut the corporate income tax rate to a flat 21% on a permanent basis.13Office of the Law Revision Counsel. 26 USC 11 – Tax Imposed It also moved the U.S. toward a territorial system by providing a 100% deduction for foreign-source dividends received from overseas subsidiaries, exempting most repatriated foreign earnings from U.S. tax.14Internal Revenue Service. Section 245A Dividends Received Deduction Overview
Two guardrails came with the territorial shift. Global Intangible Low-Taxed Income (GILTI) requires U.S. shareholders to include in taxable income a portion of their foreign subsidiaries’ earnings that exceed a routine return on tangible assets, functioning as a minimum tax on offshore profits.15Office of the Law Revision Counsel. 26 USC 951A – Net CFC Tested Income Included in Gross Income The Base Erosion and Anti-Abuse Tax (BEAT) targets corporations with at least $500 million in annual gross receipts that make substantial deductible payments to foreign affiliates, imposing a minimum 10.5% rate on a modified taxable income that adds those cross-border deductions back.16Office of the Law Revision Counsel. 26 USC 59A – Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts The TCJA also repealed the corporate AMT that had been in place since 1986.
Where Corporate Tax Stands Now
The repeal of the corporate AMT reopened the gap between reported book profits and taxable income at the largest companies. The Inflation Reduction Act of 2022 answered with a new Corporate Alternative Minimum Tax (CAMT), a 15% minimum tax on the adjusted financial statement income of corporations averaging more than $1 billion in annual book income.17Office of the Law Revision Counsel. 26 USC 55 – Alternative Minimum Tax Imposed Unlike the old AMT, which used a parallel tax calculation, the CAMT ties directly to the profits companies report to shareholders.
Internationally, the OECD’s Pillar Two initiative points the same way. More than 140 countries have agreed in principle to a 15% global minimum tax on large multinationals, enforced through a top-up tax on profits booked in any country where the effective rate falls below the floor.18OECD. Global Anti-Base Erosion Model Rules (Pillar Two) The United States has not adopted Pillar Two domestically, but American multinationals operating abroad face top-up taxes in countries that have.
Several TCJA provisions shift in 2026. The 21% rate itself is permanent, but the GILTI and BEAT rates are scheduled to increase, and 100% bonus depreciation, which allowed businesses to immediately write off the full cost of most equipment, fully expires at the end of 2026. Effective burdens on many corporations will rise even without a change to the headline rate.
The rhythm from 1909 forward is consistent. Congress lowers the rate or adds a preference, businesses find ways to shrink taxable income, and a minimum tax or base-broadening measure eventually claws back the lost revenue. Names change and the international dimension grows, but the tension between a rate that attracts investment and a system that makes profitable companies pay has driven every major corporate tax reform in American history.