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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Editor, Rachel Shuster
Designer, Dan Carvajal
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Comparing the Corporate Tax Systems
in the United States and China
• Federal policymakers are debating a legislative package focused on boosting
U.S. competitiveness vis-a-vis China; however, it currently contains little to no
improvements to the U.S. tax code.
• The existing U.S. tax code is biased against capital investment and it is
scheduled to worsen over the next decade. The tax bias against domestic
investment would further worsen if tax increases included in President
Biden’s budget proposal were enacted.
• The federal corporate income tax rate in the United States is currently 21
percent, and rises to 25.8 percent when factoring in the average state and
local corporate tax rates. Profits earned from highly immobile intangible
assets to support exports face a lower tax rate (13.125 percent) due to
the deduction for Foreign-Derived Intangible Income (FDII). The headline
corporate tax rate in China is 25 percent, and lower rates of 5 percent to 15
percent apply in certain districts.
• The marginal effective tax rate (METR) in the United States under current law
is 18.3 percent, compared to 4.8 percent in China, indicating the U.S. places a
higher burden on marginal investment than China.
• Within the realm of fiscal policy, rather than focus on providing subsidies to
specific U.S. industries, lawmakers should consider improving the baseline tax
treatment of domestic investment to boost U.S. competitiveness with China
and other countries.
Senior Economist, Research