Sunday, February 1, 2015

Obama has a Plan to Cut Corporate Tax Rates that Corporations are Going to Hate....

That's because it really raises taxes.

 Matthew Yglesias explains:

The Obama administration's budget will include a proposal to change the tax treatment of American companies' foreign profits. Were it to pass, these proposals would increase long-term tax revenue while lowering statutory rates, and also create a one-time surge in tax revenue that would finance infrastructure investments...

According to the Bloomberg reporters, Obama's plan has three elements:

A one-time tax: Obama would levy a one-time 14 percent tax on accumulated foreign cash. This is a form of the repatriation holiday idea, though in this case it would be applied whether the cash is repatriated or not. It would create a one-time surge of funds that would be used for transportation infrastructure.

A new global corporate tax: Obama would also abandon the pretense that the US is going to collect a 35 percent tax rate on foreign earnings. Instead, corporations would have to pay a much lower 19 percent tax on profits earned by foreign subsidiaries. The difference is that companies would actually need to pay the tax, rather than deferring it until the money is transferred back to the American parent company.

A crackdown on tax avoidance: This new framework would still leave US-based companies with a significant incentive to transfer profits to foreign subsidiaries. That's why the proposal will also "include rules that would make it harder for U.S. companies to shift profits overseas or to change their addresses through inversion transactions." Bloomberg does not have further details on this, but the administration has some longstanding proposals about loopholes and some newer ones about tax inversions.
Note: This is typical of government "tax reform" and "tax cuts." It always ends up resulting in greater tax charges and more revenue for the government.

And BTW, the Rand Paul-Barbara Boxer plan also has an anti-inversion provision that would greatly discourage corporations from conducting tax shielding inversions:
Companies that invert within 10 years of participating in this program must repay the tax
incentive with interest.


1 comment:

  1. When your tax plan has to include bandaid fixes to problems that you know your tax plan will create, then you know it's a jacked up plan. How about lower to rate to be competitive with the rest of the industrialized world so that those businesses will repatriate themselves?