Corporate Tax Reform On The Cards For The United States
Just look at what’s happening in the United States. A Republican president with a Keynesian New Deal? You bet! A USD4.4 trillion tax cut that stands a half-decent chance of passing? Bring it on! A postcard for a 1040? Somebody wake me!
The real significance here is not just that these things have been proposed – let’s face it, on tax, we’ve heard it all before at the hustings, endless times – but that they have passed from the realms of the impossible to the eminently possible in the space of an election.
Previously it was thought that some establishment Republicans would join hands with Democrats in Congress to block president-elect Donald Trump’s more controversial measures. This might still turn out to be the case on some issues. But tax reform doesn’t seem to be one of them. Indeed, for House Ways and Means Chairman Kevin Brady, it’s almost as if Christmas has come early. The fellow seems to be chomping at the bit to get started — which is understandable. The next couple of years might be the only opportunity in a long time for Republicans to do this.
So, for better or for worse, change is coming America’s way on the tax front. Undeniably however, these changes will be good for corporate taxpayers. Tax reform legislation will likely combine elements of Trump’s plan and the tax reform blueprint published by House speaker Paul Ryan in June, plus bits and pieces from the various Senate discussion papers on the matter. In which case, we are almost certain to see a corporate tax cut, and it will be just a question of how much. A move towards territorial taxation is by no means out of the question either. It is also probable that small, pass-through business, which make up the vast majority of all businesses in the US, will enjoy some sort of tax advantage too.
Putting aside the issue of who will benefit the most from a Republican tax reform bill, many will argue that at the very least, it is time for a clear out of the code, which, according to Ryan, has grown from 26,000 pages in 1986 – the last time a tax reform of any significance took place – to 70,000 pages today. If Congress gets close to the 1986 benchmark, it will have done very well I suspect. Not so much a tax reform, as a tax revolution.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look