22:42
Faizan
Taxes, a term so deeply engrained into the historic roots of America. I mean after all, the country was ultimately established due to the oppressive British taxes so generously bestowed upon the colonized states. So, given our history does anyone earnestly enjoy paying taxes? No, but as a functioning member of society it is the civic duty of all to contribute to the overall infrastructure of the country. We all understand this as a society yet do not always accept these taxes so gratefully, which is why taxes will always be such an immensely debated topic.
In today's business world, it is no secret that the United States holds the highest corporate income tax rate out of the 34 free market countries that make up the OEDC (Organization for Economic Cooperation and Development). As of right now the tax rate for American corporations is 35% compared to the global average of 25% (Fontinelle). Recently there has been a lot of debate over tax reform, especially with the newly elected president, Donald Trump. President Trump, being a business man himself, favors a reduction in the corporate tax rate. Unfortunately, playing with tax rates is not an easy task at hand. There will always be benefits and consequences to having the rate increased or decreased. Analyzing the drawbacks of today's 35% corporate tax rate reveals the motivation behind President Trump's new tax plan.
In a free market, having the highest corporate tax rate tends to bring more potential problems rather than benefits. The United States is put at a disadvantage in terms of incentives for businesses, especially when compared to other lower tax countries. New start-up corporations, who might have been willing to settle in the United States, will establish themselves in countries abroad to evade higher taxes. Some already established business' might relocate all together in a foreign country to again avoid costly taxes. Any CFO who has passed a personal finance course will tell the board of directors to go with the option that costs less. These lost business ventures mean two things for the United States, missed job opportunities and lost potential tax revenue. All the jobs that these businesses could have generated to the U.S. workforce are now lost to foreign countries (ProCon.org). Millions of tax dollars that could have potentially been collected through income withholding tax and other wage/salary taxes are now lost too. In 2013, it was reported that United States corporations held over 1.95 trillion dollars overseas to avoid the corporate tax rate. Again, this 1.95 trillion could have all been taxable income for the American government (Fontinelle).
Another con to having a high tax rate is the disincentive to save for a lot of these corporations. Most corporations may want to invest or save some of their profits to stimulate internal business growth. A high tax rate discourages this saving from happening within most corporations. There is more incentive to spend more now than to save for later. Corporations, like most businesses, can write off expenses, meaning they can reduce their taxable income by spending more money on the business in the current tax year instead of saving for the next (Fontinelle). No company will stand to see their profits diminish away from taxes when that said money could have been spent on the business.
President Trump hopes to implement a new tax plan within the current year in hopes of solving most, if not all the current problems faced with the established 35% corporate tax rate. President Trump has even said himself that he would like to lower the tax rate for corporations down to about 15%. House Republicans recently have made it clear that 15% is probably unattainable but say the rate will be lowered, just not below 20%. Trump believes lowering the tax rate will offer more incentive for United States businesses to produce domestically rather than outsourcing overseas. This shift in incentives could potentially add more jobs to the workforce in the U.S. which in return will help lower the unemployment rate (Pramuk). So, if there are more businesses shifting to America then that must mean more tax revenue for the government. Unfortunately, it is a little more complicated than that. As previously stated, fluctuating the tax rate is a very tedious task. If you lower the tax rate too much the government loses out on a large portion of cash flows. When lowering the rate, the hope is the lost tax revenue will later be offset by stimulated domestic business growth (Cloutier).
In today's business world, it is no secret that the United States holds the highest corporate income tax rate out of the 34 free market countries that make up the OEDC (Organization for Economic Cooperation and Development). As of right now the tax rate for American corporations is 35% compared to the global average of 25% (Fontinelle). Recently there has been a lot of debate over tax reform, especially with the newly elected president, Donald Trump. President Trump, being a business man himself, favors a reduction in the corporate tax rate. Unfortunately, playing with tax rates is not an easy task at hand. There will always be benefits and consequences to having the rate increased or decreased. Analyzing the drawbacks of today's 35% corporate tax rate reveals the motivation behind President Trump's new tax plan.
In a free market, having the highest corporate tax rate tends to bring more potential problems rather than benefits. The United States is put at a disadvantage in terms of incentives for businesses, especially when compared to other lower tax countries. New start-up corporations, who might have been willing to settle in the United States, will establish themselves in countries abroad to evade higher taxes. Some already established business' might relocate all together in a foreign country to again avoid costly taxes. Any CFO who has passed a personal finance course will tell the board of directors to go with the option that costs less. These lost business ventures mean two things for the United States, missed job opportunities and lost potential tax revenue. All the jobs that these businesses could have generated to the U.S. workforce are now lost to foreign countries (ProCon.org). Millions of tax dollars that could have potentially been collected through income withholding tax and other wage/salary taxes are now lost too. In 2013, it was reported that United States corporations held over 1.95 trillion dollars overseas to avoid the corporate tax rate. Again, this 1.95 trillion could have all been taxable income for the American government (Fontinelle).
Another con to having a high tax rate is the disincentive to save for a lot of these corporations. Most corporations may want to invest or save some of their profits to stimulate internal business growth. A high tax rate discourages this saving from happening within most corporations. There is more incentive to spend more now than to save for later. Corporations, like most businesses, can write off expenses, meaning they can reduce their taxable income by spending more money on the business in the current tax year instead of saving for the next (Fontinelle). No company will stand to see their profits diminish away from taxes when that said money could have been spent on the business.
President Trump hopes to implement a new tax plan within the current year in hopes of solving most, if not all the current problems faced with the established 35% corporate tax rate. President Trump has even said himself that he would like to lower the tax rate for corporations down to about 15%. House Republicans recently have made it clear that 15% is probably unattainable but say the rate will be lowered, just not below 20%. Trump believes lowering the tax rate will offer more incentive for United States businesses to produce domestically rather than outsourcing overseas. This shift in incentives could potentially add more jobs to the workforce in the U.S. which in return will help lower the unemployment rate (Pramuk). So, if there are more businesses shifting to America then that must mean more tax revenue for the government. Unfortunately, it is a little more complicated than that. As previously stated, fluctuating the tax rate is a very tedious task. If you lower the tax rate too much the government loses out on a large portion of cash flows. When lowering the rate, the hope is the lost tax revenue will later be offset by stimulated domestic business growth (Cloutier).
Posted in: Taxes & Money
