The effective U.S. corporate tax rate fell from 28% in the five years prior to the tax cut to 18% between 2018 and 2023.

In 2018, the U.S. corporate tax rate was slashed from 35% to 21% when the 2017 Tax Cuts and Jobs Act (TCJA) went into effect. On the campaign trail, President-elect Trump proposed a further reduction from 21% to 15%, specifying this would apply to companies that make their products in America. To do this, Congress could reinstate the domestic production activities deduction in place from 2004-2017 that would effectively lower the corporate tax rate for domestic production to 15%. However, given the global reach of many U.S. corporations, the already low effective corporate tax rates and the dominance of services over goods producers, the impact would be more limited than his first corporate tax cut.

The passage of the 2017 TCJA made the U.S. corporate tax rate much more globally competitive and reduced effective sector tax rates. At 35%, the U.S. statutory corporate tax rate floated high above the global average of 24.2% for OECD member states1. At 21%, the U.S. corporate tax rate is in line with the current OECD member average of 23.7%2. The effective U.S. corporate tax rate fell from 28% in the five years prior to the tax cut to 18% between 2018 and 2023. At the sector level, utilities, staples and technology were the biggest beneficiaries.

However, this proposal is not for a universal cut, it is targeted at domestic producers. This could be approximated by reinstating the Section 199 domestic production activities deduction, which applied to qualified activities. More than one-third of corporate taxable income qualified for this deduction and $33.9 billion in deductions were claimed in 2013. Its key beneficiaries were, unsurprisingly, manufacturing, which accounted for 66% of the deduction claims and information technology, which accounted for 16%. Finance, health care, education and other services received little benefit and the deduction for certain oil and gas activities was at a lower rate, limiting benefits to energy.

If we combine companies with effective tax rates greater than 15% with greater than 80% of revenues derived domestically, 145 companies in the S&P 5003, representing 18% of market cap and 23% of earnings could benefit. Of course, revenues derived domestically is an imperfect proxy because it does not reflect where goods are produced, but it can give a sense of scope. Of these 145 companies, 51 are in the services sectors (financials, health care, communication services) noted above that were not big beneficiaries of the Section 199 deduction. This doesn’t include services companies in other sectors. The President-elect also noted that companies that outsource, offshore or replace American workers would not be eligible, further narrowing the pool of qualified companies.

A corporate tax rate cut aimed at domestic manufacturing could benefit a subset of companies but would not likely provide the broad, sizable boost to corporate earnings that the last corporate tax cut produced. This suggests an active approach to potential beneficiaries while maintaining a broad focus on fundamentals across equities. 

1 Tax Foundation, “Corporate Income Tax Rates around the World.” 2017.
2 OECD (2024), “Statutory corporate income tax rates”, in Corporate Tax Statistics 2024, OECD Publishing, Paris.
3 Based on data available for 456 of 503 companies in the S&P 500. 
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