Federal Tax Changes

Corporate Tax Rate Change good for the economy

Mount Vernon Tax Layer
New Tax Changes – a Tax Code for Christmas!

Well, Christmas is almost here and it is starting to look like we will all be getting some new tax changes as a gift.  I happen to believe that the changes should be, on balance, good for the country and the economy – especially the corporate ones.

As I have been studying our tax system and I actually make my living in the tax law world.  Because of this, I am likely more interested in some of the complex tax strategies that large multi-national corporations have been employing to reduce their overall tax bills than most.  Many of these strategies have been hurting the U.S. economy for more than a decade.  Large U.S. companies have been reorganizing their companies around the globe in ways that keep much of their corporate income from being taxed by the U.S. Government.  I am all for companies trying to keep their taxes low, but some of the tactics they began using were right on the borderline of ethical and legal behavior.

World-wide vs. Territorial tax systems

The actions, without going into all of the different tactics used, were taken because U.S. companies started to see that they were being taxed at a much higher rate in the U.S. than the corporations from other countries were being taxed by their home countries.  Over time, this disparity began to cause U.S. company’s products and services to become more expensive on a relative basis.  These competitive pressures caused the companies to take actions to counteract the difference in the cost structures between them and their non-U.S. market participants.  Much of these differences could be explained by the U.S.’  unique world-wide tax system.  Most of the world’s industrialized countries use a different tax regime – the territorial tax system.

To sum this all up, the U.S. system was causing U.S. companies to move large portions of their companies out of the country.  Some of this was done in pursuit of low-wage labor, but a major portion of these moves were made because of the tax advantages that could be gained from it.  The U.S. lost jobs over it, and our economy was badly damaged.  Other countries benefited at our expense.  One of the main reasons this happened was because of how high the U.S. corporate tax rate was in comparison to most European countries.

The Corporate New Tax Changes Will be Good for the U.S.

The new tax changes that are likely to be made to the U.S. corporate tax rate in the new tax plan (if it passes), lowering the rate from 35% to 21%, is a good thing.  It will make our rate more comparable to the rates in other countries.  This should make it more compelling for U.S. companies to shift hiring new employees to the U.S. again, after a long period of stagnant or shrinking U.S. work forces.  Additionally, U.S. multinationals will not hesitate to bring their foreign profits back to the U.S. as much as they had in past years.  All of this will spell economic strength in the coming decade.  These new tax changes to our Tax Code should have been made years ago; better later than never!

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