Everyone in Congress pretty much agrees US corporate tax rates are too high.
The reason they haven’t cut them is that politicians want to make corporate tax cuts as part of a larger tax reform plan. They all feel they’re being pushed to give up something on taxes, and they want corporate taxes to be part of the deal.
Understandably, we are going to have a bigger tax reform package, but we need to think even further to make America competitive again.
A 15% Corporate Tax Rate
Companies always try to locate in countries that are the most tax friendly to their profits. That is why Apple, Google, and thousands of other American businesses have trillions of dollars in cash accounts overseas.
If they brought the money back, they would have to pay an outrageous 35% tax on it. What business leader in his right mind wants to reduce his working capital by 35%?
Further, too many very large US corporations (and many more not-so-large ones that fly beneath the radar) let themselves be “acquired” by foreign competitors. Obviously, doing so significantly reduces their taxes and benefits their shareholders.
The corporate tax rate in Ireland, for example, is 15%. The rest of Europe is pretty annoyed with Ireland for charging such a low rate, but their reaction hasn’t made Ireland change.
The country is seeing a massive benefit in terms of income and job growth, not to mention the increased travel- and housing-related income that comes with so many businesses re-locating to Ireland.
Now, I have nothing against Ireland — the country of my forebears — but the reality is that, all things being unequal, the US would be a better place to locate your business.
And the thing to do, then, is to make all things even better than equal.
Why not enact a 15% US corporate tax rate? Yes, you could propose 20% or 25% and it would be better than what we have. What we want, however, is to get all those companies that left the United States to come back and pay us that 15% tax.
And that should be 15% on every dime they make above $100,000. The tax form should be very simple. Put the amount of money you made in Box A, subtract $100,000, and pay 15% of the amount in Box B.
A 10% Rate on International Profits and No Deductions
To get politicians to go along with such a low rate, the President should offer to enact a 10% rate on the international profits of all these companies, so that no matter where US corporations make their money, they are paying something to the US.
A 10% rate isn’t going to change their investment decisions, and they are likely to just bring the money home at that point — putting it to work in our institutions and infrastructure.
As part of this program, we could get rid of all deductions. Period. End of story.
If it doesn’t fall under normal GAAP accounting guidelines as a deduction, it’s a profit and needs to be taxed. Get rid of the 3,000 or so special tax benefits for various and sundry corporations and industries.
That means hedge funds don’t get carried interest, oil depletion allowances become subject to normal depreciation, new assets are written off over the useful life of the asset, and so on.
Everyone Is Better Off
With a 15% tax rate, companies will probably be just as well off and maybe even better off without the deductions, as they will no longer need to pay their lobbyists to work so hard to wheedle special favours out of Congress.
This tax program would help our companies compete in an increasingly global environment. It would also encourage them to bring a lot of their manufacturing back to the United States, so boosting our employment with jobs that pay well.
And I know that dropping taxes from 35% to 15% might seem like it would result in a big loss of revenue; however, if you add in my proposed 10% corporate tax on international earnings, I think there will actually be an increase in revenue.
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