Combining a corporate tax rate of 15 percent with a top individual rate of 37 percent(another likely Trump proposal) would create a powerful incentive for wealthy people to squirrel away a large portion of their assets in a corporation. They’d pay 15 percent tax on profits versus 20 percent on capital gains and dividends or 37 percent on interest, rents, or royalties. If they hold their corporation until they die, they could transfer their assets tax-free to heirs, who could continue to accumulate lightly-taxed profits by simply keeping the assets in the corporation.
Trump Tax Plan May Free Up Corporate Dollars, but Then What?
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Consider the tantalizing $2.6 trillion in global profits that American companies are keeping out of their home accounts and out of the Internal Revenue Service’s reach.
A pro-growth tax policy would presumably aim not only to reach profits kept abroad as a tax dodge, but also to encourage companies to use that money to expand their business and hire more workers.
.. President George W. Bush set out to do in 2004 when he imposed what was meant to be a one-time reprieve and lowered the tax on those funds to 5.25 percent from a potential top rate of 35 percent.
.. companies used most of the money to pay shareholder dividends or buy back stock, not to reinvest.
.. Most of the money is not stashed in some underground vault overseas, but already in American financial institutions and capital markets. Repatriation is in effect a legal category that requires a company to book the money in the United States — and pay taxes on it — before it can be distributed to shareholders or invested domestically.
.. “The earnings are not ‘trapped,’” he said. “They’re not offshore. They’re not even earnings. They’re accounting gimmicks that allow earnings to be shifted abroad.”
.. companies already get something akin to tax-free repatriation by borrowing against those funds
.. A recent survey of business leaders by the international accounting and advisory firm Friedman, for example, found that just 23 percent would reinvest repatriated funds. Most would use the money to pay dividends or engage in share buybacks.
.. “A lot of the funds got overseas in the first place via tax dodges, so giving firms a tax break on the money coming back seems like compounding the problem,”
.. a territorial system without sufficient safeguards could end up encouraging even more businesses to shift profits, operations and jobs to countries with lower tax rates.
.. “What’s driving companies to engage in paper transactions is not our 35 percent tax rate,” he said, but other countries’ willingness to undercut whatever rate the United States settles on. “You can never win if you are competing against their zero tax rate.”
.. “If Republicans cut tax rates to levels that are unsustainable, everyone will believe rates will go up,” said Joseph E. Stiglitz, a Nobel Prize-winning economist and the author of several books on globalization and economic inequality. “And that means you’re going to get even less investment, because they are looking at future tax rates.”
.. “Growth is low because labor force growth is slow,” and it is only going to grow slower because of immigration restrictions, he said. “And we’re not investing in education and research, which is why productivity is slow. The notion that changing taxes is going to lead to a growth spurt is pure nonsense.”
It’s a Myth That Corporate Tax Cuts Mean More Jobs
“The arithmetic for us is simple,” AT&T’s chief executive, Randall Stephenson, said on CNBC in May. If Congress were to cut the 35 percent tax on corporate profits to 20 percent, he declared, “I know exactly what AT&T would do — we’d invest more” in the United States.
Every $1 billion in tax savings would create 7,000 well-paying jobs, Mr. Stephenson went on to say. The correlation between lower corporate taxes and more jobs, he assured viewers, runs “very, very tight.”
.. this bold jobs claim merits examination. Notably, it comes from the chief executive of a company that’s already paying comparatively little in federal taxes.
.. According to the Institute on Taxation and Economic Policy, AT&T enjoyed an effective tax rate of just 8 percent between 2008 and 2015, despite recording a profit in the United States each year, by exploiting tax breaks and loopholes.
.. the company, by our analysis at the Institute for Policy Studies, reduced its total work force by nearly 80,000 jobs between 2008 and 2016
.. The company has also spent $34 billion repurchasing its own stock since 2008
.. This is money that could have gone toward research and development or hiring.
.. Because most executive compensation these days is based on stock value, higher share prices can raise the compensation of chief executives and other top company officials.
.. If claims about the job-creation benefits of lower tax rates had any validity, these 92 consistently profitable firms would be among the nation’s strongest job creators. Instead, we found just the opposite.
.. American multinationals hold $2.6 trillion in profits “offshore,” on which they would owe $750 billion in federal taxes if the money was repatriated.
This Isn’t Tax Policy; It’s a Trump-Led Heist
This isn’t about “jobs,” as the White House claims. If it were, it might cut employment taxes, which genuinely do discourage hiring. Rather, it’s about huge payouts to the wealthiest Americans — and deficits be damned!
.. If Republicans embrace this “plan” after all their hand-wringing about deficits and debt, we should build a Grand Monument to Hypocrisy in their honor.
Trump’s tax “plan” is a betrayal of his voters. He talks of helping ordinary Americans even as he enriches tycoons like himself.
.. fewer than 10 percent of low-income households with children would get anything at all
.. families earning between $10,000 and $30,000 a year would receive an average child care benefit of just $10.
.. In fairness, Trump’s proposal does include some sensible elements. Raising the standard deduction is smart and would simplify everything, reducing cheating and the need for record-keeping because millions of filers would no longer itemize deductions.