United States To Cut Federal Corporate Tax
It is probably the case that the perception that large companies don’t pay their fair share arises because corporate tax is a relatively small percentage of overall tax receipts in many countries now. For example, in the United States, corporate tax revenues accounted for 11 percent of total federal revenues in the 2015 fiscal year, while individual taxpayers contributed almost half.
When looking purely at companies’ corporate tax contributions, it is understandable that there is an ongoing debate about how much companies pay in comparison to individuals. However, the fact is that corporate tax has been diminishing in importance as a revenue stream for governments all over the world in recent years, as tax burdens have been shifted away from income and towards consumption.
Corporate tax rates have also fallen sharply as countries compete for foreign investment. In which case, you could say that it is the fault of governments – and the legislatures that vote such tax cuts through – that companies are paying less corporate tax, rather than because of skulduggery by companies themselves.
The United States looks set to follow the corporate tax downtrend after the Republican victory in November’s elections – an event that may even trump (ahem) the UK’s Brexit vote in terms of shock value.
In a sense, cutting the federal corporate tax will be the easy bit. A headline rate of 35 percent may have been competitive 30 or 40 years ago, but it’s not in an era of aggressive corporate tax competition, and Washington is largely agreed that a cut is long overdue. It’s just a question of how much to cut it by.
Proposals for some form of “border adjustment tax,” on the other hand, may be a harder sell, especially in the form proposed in the tax policy blueprint published by House Speaker Paul Ryan earlier in the year. This proposed measure is designed to level the playing field for US companies penalized by foreign value-added tax and similar systems. But, even though the idea is intended to boost the US economy, it’s a controversial one. For starters, US companies dependent on imports, such as retailers of apparel and consumer electronics, could be hit hard. Indeed, a coalition of business organizations has already been formed to fight the proposal in Washington. What’s more, the measure could open a legal can of worms in terms of US obligations under world trade agreements.
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