One of President Trump’s signature campaign issues was his position that the 35 percent U.S. corporate tax rate is too high; he proposed dropping it to 15 percent. In combination with this tax cut, he also has proposed eliminating the 3.8 percent net investment income tax and lowering the top dividend rate to 20 percent. You can see the obvious difference before even running the numbers, but let’s look at our prior example to see exactly how this would shake out.

President Trump’s plan passes, and Sample Corporation earns $1 million and now pays $150,000 (15 percent) at the corporate tax level, leaving $850,000. Then the sole shareholder takes the remaining amount as a dividend and pays another $170,000 in taxes at the individual level, leaving him with $680,000. Sound great? Well, we need to compare apples to apples. How do C corporations stack up if President Trump also cuts the tax rate on S corporations and partnership income?

President Trump’s campaign promise was to lower all business income taxes to the 15 percent rate, requiring a divergence from the current law no longer taxing partnerships and S corporations at individual tax rates as pass-through income. If this is the case, the member in an LLC or the shareholder in an S corporation would pay only $150,000 on the same $1 million in income that our C corporation shareholder paid under President Trump’s new plan. In the end, this means there is still a tax rate spread of 17 percent (32 percent for C corporations versus 15 percent for partnerships and S corporations).

So even with President Trump’s proposed changes, C corporations are still at a comparative disadvantage due to double taxation. What could make a difference? To answer that, we need to look at the treatment of Section 1202 stock.