As of 2015 the US has the third highest marginal corporate tax rate in the world.
The top marginal corporate tax rate among the 173 countries surveyed was the United Arab Emirates,[2] which has a top rate of 55 percent (Table 1).[3] This is followed by the African nation Chad (40 percent). The United States, with a combined top marginal tax rate of 39 percent (consisting of the federal tax rate of 35 percent plus the average tax rate among the states), has the third highest corporate income tax rate in the world, along with Puerto Rico. In contrast, the average across all 173 countries is 22.9 percent, or 29.8 percent weighted by gross domestic product.[4]
OK. So the average corporate tax rate is about 23% what does Trump want to do?
No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.
What he intends to do about corporate inversions is to invert them. Get businesses to come here instead of go there. Eventually corporate income tax rates will go to near zero. So low that companies weight that factor less than most other factors. In any case. Corporations do not pay taxes. Their customers and investors do.
What else would lower taxes do? Overnight increase the value of US capital. That would be nice for all those pension funds and 401(k)s.
Of course he couldn’t do that without the help of Congress and that includes Ted Cruz.
Presidential candidate Ted Cruz’s tax proposal would (1) repeal the corporate income tax, payroll taxes for Social Security and Medicare, and estate and gift taxes; (2) collapse the seven individual income tax rates to a single 10 percent rate, increase the standard deduction, and eliminate most other deductions and credits; and (3) introduce a new 16 percent broad-based consumption tax. The plan would cut taxes at most income levels, although the highest-income households would benefit the most and the poor the least. Federal tax revenues would decline by $8.6 trillion (3.6 percent of gross domestic product) over a decade.
What he means by a “a new 16 percent broad-based consumption tax” is a Value Added Tax (VAT). A final seller sales tax allows the consumer to see the tax. A VAT helps to hide that.
Here is a comparison of the Trump and Cruz tax plans. You get at no extra charge a Bernie and Hillary presentation.
Texas Senator Ted Cruz has called for reducing the effective corporate tax rate to 16%. Donald Trump does him one better, proposing to cut it to 15%. Cruz’s plan, were it enacted, would generate a revenue shortfall for the government of $8.6 trillion over 10 years, according to the non-partisan Tax Policy Center. Trump’s plan would create a gap of $9.5 trillion, increasing the national debt by 80%, the center estimates.
As for the Democrats, neither Hillary Clinton nor Bernie Sanders have said they’re willing to lower the 35% corporate tax rate. In fact, Clinton favors an “exit tax” to prevent companies from leaving the U.S. tax system through corporate inversions as Medtronic (MDT – Get Report) did earlier this year when it completed its acquisition of Dublin-based Covidien.
I looked to see if there were any plans or even whispers about Congress changing the rates. I couldn’t find anything.
What I did find was that small businesses object that they may lose their sub chapter S advantages (corporate taxes get transferred directly to individuals instead of being taxed twice – once as a corporation and once as an individual).
Many Democrats and Republicans, including new House Ways and Means Committee Chairman Paul Ryan, agree that they will try to reduce the 35 percent corporate tax rate and curb business tax breaks to help pay for it. They’ll leave individual rates alone to avoid a politically charged fight.
The complication is that millions of U.S. businesses — from the largest hedge funds to neighborhood restaurants — don’t pay taxes through the corporate system. Instead, income and tax breaks appear on the individual returns of those businesses’ owners, in effect intertwining the corporate and individual parts of the tax code.
That will be tricky to sort out.
Comments
3 responses to “Driving Business Out Of The Country”
Consumption taxes have less distorting effect on the economy compared to an income tax. In an ideal world a national sales tax and no income tax would work well. With this government we’ll get both. Europeans pay high income tax, plus a VAT around 17%. Salaries are lower than here, and consumer goods cost more.
Trunp’s plan makes a lot of sense, one of the earliest reasons I was attracted to his campaign. Wish we’d get more of that Trump. Cruz’s is more levitating pie in the firmament. How do we get there from here?
All of them including Cruz, Bernie, Hillary, Rand Paul, and probably Trump when someone gets to him, are for a VAT. It’s one of the reasons I dropped my support for Paul. They are drooling at the prospect of more taxes, especially hidden ones. What we’ll get with any of this bunch is a VAT combined with a nominal reduction of corporate and individual income taxes – which will be a one shot event, and then a gradual step by step increase in the VAT as need arises. I’ve already decided that by the time a VAT is imposed sometime in 2017 or 2018, I will have closed my business and said fuck you to the whole rotten bunch of thieves. I’ve started liquidating now.
For all your support of Trump because he appears to be the anti-establishment guy, you will find out that he is a player. His whole life has been making deals. That means he has no firm ideology or principles. If he wants a 15% income tax on business, he will trade something to get it. Maybe he’ll go for a VAT, or it could be single payer. Whatever it is, it doesn’t matter to him as long as he get something in return. It’s the deal that is important to him. In that sense he is absolutely no different than the current crop of Republican congressmen. They make deals to benefit their backers and money men, while Trump will make deals to stoke his ego. Either way we get screwed.
Of course, I have a much darker view of Trump than being just a deal maker, but that was another post. The one above assumes I’m wrong about his soon to be seen love of riding boots and the Gerte.