Major American Companies Pay Lowest Federal Tax Rate in Four Decades
Washington, Thursday, 22 October 2026.
A study by the Institute on Taxation and Economic Policy reveals that 706 major U.S. corporations paid an average effective federal income tax rate of just 10.4% on $1.88 trillion in domestic profits in 2025. Marking the lowest level recorded in over 40 years of research, this rate is less than half the statutory 21% tax rate. Driven by expanded legislative incentives, corporate tax subsidies reached $198 billion, enabling 114 highly profitable firms to pay zero federal income tax. These findings underscore a significant shift in corporate taxation and federal revenue collection.
Legislative Drivers of Tax Reduction
The precipitous decline in corporate tax contributions stems from consecutive legislative actions, specifically the 2017 tax law and the 2025 “One Big Beautiful Bill Act” (OBBBA) [1]. The 2017 legislation initially reduced the statutory corporate tax rate from 35% to 21%, a change that saved the analyzed corporations $263 billion in 2025 alone [1]. Subsequent provisions in the 2025 law expanded permanent corporate tax breaks, including $88 billion in depreciation tax deductions and $37 billion in research expensing write-offs for large firms [1]. Matt Gardner, a Senior Fellow at ITEP, noted that these findings show how dramatically the corporate tax system has been tilted in favor of the nation’s wealthiest companies [2]. The cumulative effect of these policies has resulted in a system where special tax breaks shield more than 50% of domestic profits from federal income tax [2].
Sector-Specific Tax Outcomes
Industry-level analysis reveals significant disparities in effective tax rates, with technology and aerospace sectors benefiting disproportionately. In 2025, technology firms reported an average effective federal tax rate of 10%, securing $68.5 billion in federal subsidies [2]. Internet retailers paid an average rate of just 1.3%, while the motor vehicle industry averaged 2.7% [2]. A subset of 25 corporations accounted for over 50% of total identified tax subsidies, with Meta, Amazon, Microsoft, and Alphabet each receiving between $13 billion and $19 billion in subsidies [1]. Additionally, 114 of the 706 corporations paid zero current federal income tax, including major entities like Tesla and Walt Disney [2]. This concentration of benefits highlights how specific mechanisms, such as accelerated depreciation and the Foreign-derived deduction-eligible income (FDDEI) provision, continue to lower tax rates on foreign-held intellectual property income [1].
Corporate Financial Context and Backlog Growth
Contemporary financial filings reflect the ongoing impact of these tax structures on corporate balance sheets. Northrop Grumman Corporation, for example, filed a Form 8-K on October 20, 2026, reporting an effective income tax rate of 13.4% for the quarter ended September 30, 2026, down from 16.9% in the same period of 2025 [4]. The company’s total backlog reached $109,597 million as of September 30, 2026, representing a significant increase from the $95,681 million reported on December 31, 2025 [4]. This growth calculates to a backlog increase of 14.544 percent year-over-year [4]. While Northrop Grumman’s rate remains above the 10.4% average identified by ITEP, the downward trend in tax expense aligns with broader industry patterns driven by research credits and contract mix changes [4]. These financial disclosures underscore the complex relationship between statutory rates, effective rates, and corporate liquidity in the current economic environment.