CORPORATE TAXES - - -
I have worked in developing my tax practice since 1982. I put a lot of hard work into it and was offended last year when I heard from our President that I didn't build my tax business. Many voters know that our current tax system is broken due to over legislation and lobbying. I believe that we need to modify our tax system so that it increases our Nation's revenues AND increases our economy's productivity. There is currently a lack of long range planning by our Congress as evidenced recently by its passage of 2012 tax law on January 2nd, 2013! How can you or any small business plan for taxes if there is no stability or long term guidance in our tax system? Why would any international manufacturing corporation want to risk bringing its jobs and capital to our shores if they cannot plan for taxes? We must substantially modify or replace our current broken system.
So, let's start with a short overview of something like our complex, over lobbied, current corporate tax system - - -
I believe that we should start with lowering our 38% Federal corporate income tax rate which is now the highest corporate income tax rate in the world. Our California corporate tax can be 8.84% more!
I usually wake up at about 4:30 A.M. and turn on N.P.R. to listen to what's going on in Europe's markets. Recently, my ears focused on a radio ad from IRELAND asking U.S. corporations to come and visit their shores and experience their low tax rates.
Upon doing some research, I learned that Ireland's corporate manufacturing tax rate is 10% and their capital gains rate is 25%. HOWEVER, if you move your company to Ireland and become a New Start Up Company, you will pay -0-% tax for the first three years. (WOW!)
Now, let's assume that Company A was headquartered in the U.S.A. and manufactured a widget. The widget's total manufacturing and marketing costs was $6,000 of its $12,000 sales price. The U.S.A. profit is $6,000. Its Federal tax is $2,280. Its California income tax is $530. But, if it moved to Ireland, it could become more competitive from tax savings by lowering its price from $12,000 to $10,000, sell more product at the new lower price and make more money and jobs in Ireland since it wouldn't have to pay any income tax for the first three years. Even after the three year trial ends, the manufacturing tax would be 10% which is still much lower than our Federal 38% income tax rate.
So, if Company A stays headquartered in the U.S.A. and has international sales, it could be taxed by the IRS on 38% of its world-wide income. That's how our system works. You are taxed on your world-wide income. I believe that you can see that since corporate taxes are part of Company A's costs of doing business, it may not be able to compete against its lesser taxed foreign competition unless it moves out of the U.S.A..
To keep competitive with the rest of the world, I agree with the National Commission on Fiscal Responsibility and Reform with their proposal to lower rates, eliminate the bulk of corporate deductions to simplify record keeping and go to a tax on territorial income (not world-wide income). Again, the savings from these adjustments and the new taxes from the new jobs stimulated MUST BE applied against our National debt.
Last Updated: November 21, 2015