Companies pay less in tax as profits soar

By the Editorial Team · Thursday, October 22, 2026

Corporate income tax revenues in the U.S. dropped by about 15% to $381 billion in the fiscal year ending 2025, despite record corporate profits, largely due to a 2025 tax law accelerating depreciation on AI-related investments. This decline, driven by massive spending on AI infrastructure by major tech firms, raises concerns about long-term fiscal deficits and the effectiveness of these tax incentives as companies would likely have made such investments regardless.

Corporate tax revenue in the United States has declined sharply despite record-high corporate profits, driven primarily by changes in tax policy implemented under the Trump administration and continued investment in artificial intelligence (AI) infrastructure. According to Treasury Department data for the fiscal year ending October 1, corporate income tax receipts fell about 15%, to $381 billion, marking a $70 billion decline from the previous year and a drop of more than 25% compared to 2024, the last full fiscal year of the Biden administration.

The decline follows a 2025 tax law passed by Republican lawmakers and signed by President Donald Trump that accelerated the ability of companies to write off the cost of capital investments. This accelerated depreciation allows firms to deduct large portions of investment expenses, such as those related to AI projects, data centers, and computing equipment, in the year the expenditures are made rather than spreading the deductions over several years. The change was intended to incentivize new business investment, particularly as major technology companies ramped up spending on AI development.

However, the magnitude of recent investment, especially by firms like Microsoft, Google, and Meta, appears to have diminished the incentive effect of the accelerated write-offs. These companies have committed to deploying hundreds of billions of dollars in AI-related infrastructure, suggesting that investments would have occurred regardless of the tax breaks. Some analysts argue the policy effectively rewards corporate spending that was already planned.

The decline in tax revenue comes amid a broader fiscal picture marked by rising government deficits, which approached $2 trillion in the last fiscal year. Increased military expenditures and higher interest costs on federal debt, which now exceeds $32 trillion, have compounded the budgetary challenges. The deficit has expanded even though the economy remains relatively strong, with unemployment low and individual income tax revenues growing.

Critics on the Democratic side have targeted the accelerated depreciation provision as a subsidy disproportionately benefiting large corporations investing in AI data centers. Senator Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, has proposed limiting the tax break's application specifically for data center components. Supporters of the policy maintain it promotes broader business investment and expect the drop in tax revenue to be temporary as companies exhaust available deductions over time.

Economists caution, however, that the current wave of AI investment may continue for several years, potentially delaying any rebound in corporate tax receipts. Projections estimate total AI infrastructure spending in the U.S. could exceed $10 trillion between 2025 and 2032. This sustained investment surge also coincides with higher interest rates and increased costs of capital, which may crowd out investment in other areas of the economy.

Further uncertainty surrounds whether these large AI expenditures will translate into long-term profitability. Some experts warn of a potential bubble if AI processing becomes commoditized and open-source models reduce costs dramatically, leading to diminished corporate revenues and corresponding tax collections.

The evolving tax landscape highlights a growing divergence between corporate earnings and the taxes paid on those earnings compared to wages, which could have implications for future tax policy and fiscal stability. Meanwhile, some financial strategists express skepticism about the necessity of such business tax cuts during a period of strong economic growth, cautioning that stimulating investment beyond a certain point may yield diminishing returns.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.