I have not had much to say on Trump's corporate tax reform plan largely because others have covered the ground perfectly well. It appears to be largely without economic justification unless the plan is to deliver bias towards large corporations and the wealthiest whilst imposing regressive tax charges on the least well off in the USA. Inherent in the plan is an assault on states that tend to vote Democrat. It's a tawdry, partisan and deeply unjust proposal.
But I have found a curious sting in its tail. Literally, it's at the end. What the plan says as a last gasp is:
To prevent companies from shifting profits to tax havens, the framework includes rules to protect the U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations.
I'll be candid: it is not clear what that means. But I think some inferences can be drawn.
The first is that, after all, this is not a territorial tax proposal. It is a worldwide tax proposal with a lower rate for profits earned outside the USA.
Second, this is biased against tax havens, which are presumably identified by having low or no tax rates.
Third, in that case assuming that credit is given for tax paid elsewhere (as is likely) what the Trump plan delivers is a basis for a worldwide minimum corporation tax rate. In other words, the US will tax profits that others exempt to ensure that the incentive to shift to tax havens is removed.
This is not what I expected from Trump. And I may be wrong about what this means: we know how hard he finds it to formulate an idea, let alone stick to it. But if this is true then in this idea (and maybe this idea alone) there is something of interest to be looked at here. And at the very least it might kick start wider debate on something tax justice campaigners have wanted for a long time.
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It’s a bit difficult to interpret what the suggestion is, but I think that this link from the brookings institute pretty much is probably in line with what the suggestion actually is intended to look like in practice:
https://www.brookings.edu/opinions/a-plan-to-tax-the-foreign-income-of-u-s-companies/
ie: at the moment, US companies don’t want to repatriate money in tax havens because they are taxed 35%, but the US govt (and companies and shareholders) want that money to be repatriated to the US, and where the money has been taxed at very low rates previously, the proposals suggest that US companies should be taxed in line with the future US domestic rates, taxing into account what tax has already been levied in the foreign companies.
There are a few legal and political issues with this though. Legal: Surely US companies could argue that the low taxation in the tax haven was legitimate in the same way that the US company paying low tax rates in the UK might argue it is legitimate due to investment in current/prior years or ownership of intellectual property. Political: there are many in the US who simply want that money to be repatriated to the US, and the argument is that repatriating the £100 billions of dollars to the US would provide a stimulus to the economy that far outweighs the benefits of any tax revenue. And hence in practice the repatriation rate might be extremely low.
“I’ll be candid: it is not clear what that means.”
That’s for sure. I have looked over the linked document, read and re-read the two most relevant sections for this discussion (the last two – “Territorial taxation of global American companies” and “Stopping corporations from shipping jobs and capital overseas”) and I could scarcely make any sense of it. The document makes their aspirations quite clear but as for the rest of it, the reader is left with more questions than answers.
Looking at the inferences you have drawn, albeit tentatively, I can see the benefit of your expertise and experience in this area.
“I’ll be candid: it is not clear what that means.”
That’s for sure. I have looked over the linked document, read and re-read the two most relevant sections for this discussion (the last two – “Territorial taxation of global American companies” and “Stopping corporations from shipping jobs and capital overseas”) and I could scarcely make any sense of it. The document makes their aspirations quite clear but as for the rest of it, the reader is left with more questions than answers.
Looking at the inferences you have drawn, albeit tentatively, I can see the benefit of your expertise and experience in this area.
“To prevent companies from shifting profits to tax havens, the framework includes rules to protect the U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations.”
My understanding (which may be wrong) is that US nationals (individuals) abroad are required to submit tax returns to the IRS.
If this is so then there has been a disconnect in policy which allows a corporate entity to be legally regarded as a person when it suits them, but not so when it doesn’t.
If this really is a shot across the bows of tax havens 1) it is long overdue. 2) the ‘deep state’ interests will sink it. (watch for that sting in the tail paragraph magically disappearing) 3) What chance Britain will support the move? I can’t see the Tories going for it.
re “This is not what I expected from Trump.” It’s implicitly in line with what he promised on the campaign trail viz ‘draining the swamp’ and repatriating offshore funds (particularly from the FAANGS) He hasn’t managed to get anything else past the ‘swamp critters’ yet, so I don’t rate his chances with this either if it has the implications you are inferring.
Bill Bonner the wiley old American commentator doesn’t see these proposals as other than another check (sic) for the one percent of which he is a member. And he’s not gloating; he’s embarrassed.
[…] a year ago suggesting what I called an Alternative Minimum Corporation Tax. In the context of the hint within the Trump corporate tax plan that such a tax might be under consideration for the USA I thought it worth sharing the blog I wrote on this issue […]