Introduction
Many proposals have been put forward in the United States to reform the corporate tax system into a better and adaptable system as the current system hinders the American companies’ competitiveness. These proposals are aimed at reducing the country corporate income tax rate, which is very high as compared to those of other countries. Some of these include Dave Camps (R_MI) proposal of reducing the corporate tax rate to 25 percent, Sen Rob (R-OH) proposal to overhaul corporate tax, president’s commission of lowering the corporate tax rate to 28 percent and Sen Ron and Dans proposal to lower the corporate tax rate to 24%.
Attractive proposal for U.S. corporate taxpayers
Dave Camps the chairperson of the House ways and means committee proposal of lowering the corporate tax rate from 39.2 % to 25 % is the most appropriate to the U.S. corporate taxpayers (Ernst & Young 2011). His proposal is aimed at exempting foreign income obtained from controlled corporations and minimizes shifting investment income abroad. His proposal would retain a few elements of the present international system like the anti-deferral rules with some modification of making them attractive to the US corporate taxpayers. This proposal is not only going to attract investors but also enables the US multinational companies to increase their competitiveness in the global economy (Anderson, K. E., Pope, T. R., & Kramer, J. L. 2013). Camp proposes that this will be achieved through, developing a new group of subpart F ‘’foreign base company excess intangible income’’ developing another group “low tax cross border income and finally group three for the foreign intangible tax income. All these will minimize the foreign income exempted.
Impact to corporations and the US economy
Repatriation of the foreign profits will have a great impact on both the US economy and the corporations; first, reduction of unemployment. There will be a favorable business environment encouraging investments. There are high chances of an increase in research and developments in the country mainly because many companies will operate in the United States and will hire skilled and unskilled personnel from the country.
The repatriation process will also increase the total US income; since many companies will relocate, back home and their tax revenues will benefit the country. Also, it will encourage companies to repatriate most of the foreign income that could have been invested overseas, this results to increase revenue income in the short term. This income can be spent in the country development programs and hence boost the country development goals.
Repatriation also increases the amount of share revenues earned by the shareholders; this income will be spent in the United States and thus will result in shareholders satisfaction and the country benefits from money circulation.
Corporate taxes I would propose to be eliminated
I would eliminate the corporate income tax and increase the capital gains tax rate. This will make the US tax system fairer, simple and rational. Eliminating the corporate income tax, avoidance and evasion will reduce. The elimination of the corporate income tax will also encourage the repatriation of income to overseas holding which done to avoid the high taxations. This is harmful in that it hinders growth by affecting the wage level negatively since an increase in the corporate rate will result to increase in the corporate tax resulting in companies devoting resources to avoid or minimize it and thus increasing the cost of its collection. Thus, it will not reduce the amount of income received by the United States as argued in some studies, instead, it will attract many investors and they are very many positive impacts associated with this investment.
The elimination of corporate income tax will cause divided income will also cease because cooperate tax is charged together with dividend tax and this will make the US most favorable country for both local and foreign investors. This is mainly because most companies will be able to maximize their profits and increase the shareholder’s returns. I would also eliminate the double taxation policy as it hinders many investors from investing in a country. This will guarantee high investor attraction and the growth of the country development. Double taxation hurts foreign companies since they have to pay tax at the home and the foreign country, this reduces the shareholder’s fund, and to avoid these most companies tend to invest in countries where double taxation does no longer exists to maximize their profits.
Consumption tax should also be abolished as it is costly to collect and the income obtained from it is insignificant. The elimination of this tax will result in increased economic growth. Though it does not have a direct impact on companies its elimination will make investing cheaper to the companies and this will be profitable to the economy.
Positive and negative impacts of the proposed elimination of tax
The positive impact of eliminating the corporate income tax includes the huge income that will result from investor attraction and the income repatriation. Also, there will be job creation as many companies invest in the country. The wage level will also increase since there will be no more increase in wages as a result of an increase in the rate of corporate – income tax ( Toder, Eric & Joseph Rosenberg 2010). The abolition of double taxation will promote the competitiveness of the home companies as they will not have to pay tax twice, also it will make the US an attractive foreign investment.
President’s Advisory Panel on Federal Tax Reform, (2005) stated that the elimination of the above costs would also result in long-term US economic growth, increase the US companies’ competitiveness in the market, lead to better living standards, increase entrepreneurship /productivity and encourage foreign direct investment.
Alternative tax method for corporations
The following is an alternative proposal to the current corporate tax in the US together with the benefits that will result if it is applied.
I will reduce the corporate tax rate to 23 %. This will make the US companies competitive as the rate is not too high nor low as compared to the rest of the countries this will also minimize the number of companies that prefer investing in foreign countries and increase the country’s employment/ wage level. I will also abolish the double taxation tax as it hinders companies from investing due to double taxation.
Apply a 90% deduction on foreign dividend income received from Controlled Foreign Companies. This will minimize the total divided tax and help the states be competitive globally.
I would also subject 10 percent of the divided received to taxation. In addition to these, I would treat the United States company foreign branches as controlled foreign corporations.
These would encourage most companies to invest at home especially the reduction of the corporate income tax rate; it would also have a positive impact on the research and development.
References
Anderson, K. E., Pope, T. R., & Kramer, J. L. (2013). Prentice hall’s federal taxation 2013 corporations, partnerships, estates, and trusts: Strayer Custom Edition. Prentice Hall – Pearson.
Ernst & Young. (2011). Chairman Camp’s territorial tax plan: five things businesses should know. New York: Mc Graw Hill.
President’s Advisory Panel on Federal Tax Reform,. (2005). Simple, Fair, and Pro-Growth: Proposalsto Fix America’s Tax System. Washington, D.C: Urban-Brookings Tax Policy Center.
Toder, Eric & Joseph R. (2010). Effects of Imposing a Value-Added Tax to Replace Payroll Taxes or Corporate Taxes. Washington, D.C.: Urban-Brookings Tax Policy Center.