The Six Largest Corporate Tax Expenditures
Corporate tax expenditures — also known as corporate tax breaks — are a part of the tax code that significantly reduce corporate income tax revenues, contributing to America’s $38 trillion and rising national debt. This piece looks at how corporate tax expenditures work, which activities they incentivize, and how they impact the federal budget.
What Is a Corporate Tax Expenditure, and Who Benefits?
According to the Joint Committee on Taxation, “tax expenditures include any reductions in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers.” Tax expenditures can take the form of exemptions, deductions, credits, and preferential rates written into the U.S. tax code and benefit corporations, individuals, or both. About 12 percent of tax expenditures went to corporations in 2025, with the remaining being individual expenditures.
In 2025, corporate tax expenditures accounted for approximately 60 percent of corporate tax revenues.
What Are the Largest Corporate Tax Expenditures, and How Much Do They Cost the Government?
In 2025, there were six corporate tax expenditures greater than $10 billion:
- Credit for and expensing of research activities ($74 billion). The credit and full, permanent expensing of R&D is in place to encourage research and development. A corporation can claim a credit of up to 20 percent of certain domestic research expenses. Similarly, businesses can fully expense research costs in the year costs were incurred.
- Reduced tax rate on active income of controlled foreign corporations ($48 billion). The provision relates to international affairs and prevents the so-called “double taxation” of corporate income earned abroad. The provision targets controlled foreign corporations (CFC), foreign companies with at least 50 percent U.S. ownership. If the company sells in another country that taxes the profits in that region, income from the CFC is taxed below the statutory rate.
- Depreciation of equipment in excess of the alternative depreciation system ($34 billion). If a business manufactures, constructs, or produces property for trade, business, or production, it can immediately deduct the full cost of those qualified investments. The asset must have been put into service after January 19, 2025, and have a recovery period of 20 years or less. Essentially, the tax expenditure allows for writing off an asset earlier in its lifespan than if the alternative depreciation system were used.
- Energy credit ($19 billion). A credit is extended for 6 percent of the basis of energy equipment. The OBBBA accelerated the credit’s phase-out by limiting the credit to projects where construction begins ahead of January 1, 2025, in most cases. Hence, the credit will be less prominent in future years.
- Deduction for foreign-derived intangible deduction eligible income (FDDEI) derived from trade or business within the United States ($15 billion). To incentivize U.S. exports and to encourage businesses to keep intellectual property within the United States, the FDDEI deduction reduces the tax rate on foreign-derived sales and service income to 14 percent rather than the usual 21 percent. For tax years beginning before January 1, 2026, the deduction had slightly different rules and was known as the foreign-derived intangible income (FDII) deduction.
- Credit for low-income housing ($13 billion). The credit goes to housing developers who will construct, acquire, or rehabilitate affordable housing. The credits are federally funded but administered at the state and local level (there is a cap on the credits offered in each state, and they are competitively allocated).
Those six credits add up to $203 billion, or 77 percent, of the $264 billion of total corporate tax expenditures in 2025. Relative to the size of the economy, the United States collects less revenues from corporations than many other advanced countries, and the tax expenditures are a contributing reason.
With the national debt rising faster than ever, now is the time for lawmakers to look across the budget to find solutions that promote economic growth, improve the fiscal outlook, and the fairness of the system.
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Further Reading
10 of the Largest Tax Breaks Explained
Tax breaks totaled over $2.0 trillion in 2025. That’s more than the government spends on Social Security, defense, or Medicare and Medicaid.
8 Key Charts on Tax Breaks
The cost of tax breaks was greater than the size of the deficit in 2025.
How Did the One Big Beautiful Bill Act Change Tax Policy?
See how OBBBA restructured the tax landscape across four major areas: individual tax provisions, business tax provisions, energy tax credits, and health-related tax changes.