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Trump Wants Tax Plan to Cut Corporate Rate to 15%

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Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#101

Post by aanm1988 »

dmix wrote: post #17
thrillgore wrote: post #3

Earlier quoted context omitted.

How much of the capital would realistically go to those, as opposed to shareholder payouts?

Only a small percentage of companies are public and have CEOs making giant bounces off of tax cuts. This worldview that Bernie Sanders esque people hold, where every business person is a rich multi millionaire, ignores the reality of business... where the vast majority are small and medium sized businesses. The critique of George Bush's temporary tax credit was that it was used as bonuses rather than stimulating the…

Didn't sanders tax plan involve closing loopholes used by big companies and taxing the wealthy more heavily?

Neither of which would hurt your precious small businesses.

They would hurt the corporate overlords though.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#102

Post by mjfl »

pavlov wrote: post #93

Finland tried this same thing with the same "dynamic effects will offset lost tax revenue!" rhetoric a few years ago, and it didn't work out anything like expected. At the start of 2014, Finland lowered its corporate tax rate to 20% (from a previous 24.5%). The lost tax revenue amounted to $800M EUR, but the government claimed that half of that would be recouped thanks to positive dynamic effects the tax cut would cr…

To play devil's advocate, Finland was giving sort of a vague argument for their tax cuts: "dynamic effects", while in America there are very concrete potential effects of the policy. You can point directly to Apple and say, "If we cut tax rates to 15%, Apple will bring back $X to the USA", "Exxon Mobile will bring back $X to USA", and so on. You can even... talk to them and ask them what it would take to repatriate the offshore funds, and I would hope Trump would do that. So yeah, I think it's one thing to cut taxes and hope "economic growth" happens automatically, but a completely different thing if you have a quantifiable number of offshore dollars, deals can be made, etc.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#103

Post by jliptzin »

nodesocket wrote: post #71
jliptzin wrote: post #49

Earlier quoted context omitted.

I never understood this argument. I am a business owner. I optimize for personal profit, which is the profit from my business, with some percentage cut out for taxes. When I optimize my business profit, the tax rate is not part of the equation. If I find that hiring someone for $100k / year is a good thing to do for the long term profitably of the company, I will do that. If I need to spend $50k on a machine because…

I am also a small business owner. Agree, everyday expenses I don't evaluate against how much in taxes I am going to pay. However at public companies scale and the rule of large numbers applies. It makes a significant impact to bottom lines and profits of corporations.

I still have yet to hear any concrete ways a corporate tax hike impacts business decisions. I tried doing some research, I found this snippet that attempts to explain it:

"Therefore, when a corporation is forced to pay high amounts of income tax, the company may not be able to grow and offer employment to new employees. In fact, one of the most common ways that corporations respond to large corporate tax hikes or new types of corporate taxes is to begin to lay off workers or employees in order to cut costs and maintain profit margins."

http://www.finweb.com/taxes/how-does-a-corporate-income-tax-...

Let's say company ABC makes lawn mowers. Corporate tax rate is 20%. They sell their lawn mowers for $200 each and cost to manufacture each unit is $150 for a $50 profit. They sell 100,000 units in a year, making $5M in profit for the year. At 20% tax, they get to keep $4 million of that. If the tax rate is suddenly bumped to 40%, then they only keep $3 million. But I don't see how that impacts any of their business decisions related to building and selling lawn mowers. Their goal is to maximize profit by building the lawn mowers as efficiently as possible and then selling as many of them at they can at some price point. Expenses and wages to do all of that are all tax deductible. The tax rate does not figure into any of these decisions. That only comes into effect at the end of the year after they've made as much profit as possible from their sales. If they respond by laying off employees, then they should have done so before the tax break, and are probably just using the tax break as an easy excuse to get rid of people they don't want working there anymore. What part of this do I have wrong?

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#104

Post by unclebucknasty »

harryh wrote: post #81
abhv wrote: post #79

Earlier quoted context omitted.

If I own a software business that earns 500k-1m a year, currently, I can organize as an LLC and induce pass-thru income that is taxed marginally at ~50% (federal, state, NYC). If I organize as a C-corp, I pay the corporate rate which is also roughly 40%, and I also get double-taxed on salary and any dividends paid to owners. Under these new rules, if a C-corp gets taxed at 15%, there is a strong incentive to pass all…

Well, the disincentive to make it a C-Corp goes down. But your taxes will still be higher that way: 15% + individual taxes vs just individual taxes. I certainly agree that the double taxation issue is a problem and it would be even better if both situations were taxed the same way but I'm not sure what this has to do with tax evasion.

Yeah, but if you're reinvesting in your company, then you might be better of at 15%, even with double-taxation.

Currently, pass-through taxation applies to shareholders even if they don't take a distribution. So, rather than have shareholders pay taxes out of pocket, the company pays the dividend just to cover taxes. That's essentially a ~30% tax on the company.

If I switch to a C-corp at 15% then I can minimize dividends while in growth mode to minimize double-taxation. I then pay the much lower 15% corporate rate, leaving me with ~15% more to reinvest.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#105

Post by harryh »

unclebucknasty wrote: post #98
ska wrote: post #36

Earlier quoted context omitted.

The IRS is not stupid, but wealthy enough people have been very effective at creating and exercising approaches to bring their marginal tax rates down to impressively low numbers. So if the IRS is smart but this still happens a lot, there must be something else at work, no?

It's not the IRS as much as the loopholes bought by special interests.

What loopholes exactly?

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#106

Post by harryh »

unclebucknasty wrote: post #104
harryh wrote: post #81

Earlier quoted context omitted.

Well, the disincentive to make it a C-Corp goes down. But your taxes will still be higher that way: 15% + individual taxes vs just individual taxes. I certainly agree that the double taxation issue is a problem and it would be even better if both situations were taxed the same way but I'm not sure what this has to do with tax evasion.

Yeah, but if you're reinvesting in your company, then you might be better of at 15%, even with double-taxation. Currently, pass-through taxation applies to shareholders even if they don't take a distribution. So, rather than have shareholders pay taxes out of pocket, the company pays the dividend just to cover taxes. That's essentially a ~30% tax on the company. If I switch to a C-corp at 15% then I can minimize divi…

With either setup you can reinvest all of your cash flow thus reducing your profit to zero and your tax burden to zero.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#107

Post by jstelly »

jellicle wrote: post #67
harryh wrote: post #47

Earlier quoted context omitted.

What you call a loophole most every other country in the world calls "territorial taxation." If a good is produced outside the US and sold for a profit outside the US then the US shouldn't collect taxes on the transaction.

The loophole allows self-dealing transactions to move local profits offshore. Apple US buys iPods for $10 from China and sells in USA for $100. $90 profit, taxable, right? Wrong. Apple US licenses the Apple name from Apple Ireland for $89/iPod. Final tax sheet looks like: Revenue: $100 cash from Apple store in San Francisco Expenses: $10 Apple China, $89 Apple Ireland Taxable profit in USA: $1 (minus labor and such,…

Here's an article that explains how starbucks uses a similar strategy to reduce their tax bill: http://www.reuters.com/article/us-britain-starbucks-tax-idUS...

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#108

Post by unclebucknasty »

harryh wrote: post #105
unclebucknasty wrote: post #98

Earlier quoted context omitted.

It's not the IRS as much as the loopholes bought by special interests.

What loopholes exactly?

Pretty easy to find online if you're genuinely interested.

Start with oil.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#109

Post by harryh »

unclebucknasty wrote: post #108
harryh wrote: post #105

Earlier quoted context omitted.

What loopholes exactly?

Pretty easy to find online if you're genuinely interested. Start with oil.

Oh, you're talking about the corporate tax code. OK, plenty of crazy things there (though the line between "bad loophole" and "unavoidable complexity" is narrower than most think).

This is (as was said elsewhere in this thread) one of the biggest reasons to get rid of the corporate tax code completely and just tax people where things are much simpler and much less susceptible to these sorts of problems.

Re: Trump Wants Tax Plan to Cut Corporate Rate to 15%

#110

Post by unclebucknasty »

harryh wrote: post #106
unclebucknasty wrote: post #104

Earlier quoted context omitted.

Yeah, but if you're reinvesting in your company, then you might be better of at 15%, even with double-taxation. Currently, pass-through taxation applies to shareholders even if they don't take a distribution. So, rather than have shareholders pay taxes out of pocket, the company pays the dividend just to cover taxes. That's essentially a ~30% tax on the company. If I switch to a C-corp at 15% then I can minimize divi…

With either setup you can reinvest all of your cash flow thus reducing your profit to zero and your tax burden to zero.

In theory, sure. But, anyone who has run a pass-through business will tell you that it's a function of timing. If you don't manage to invest it all by the end of the tax year, then it's taxable profit.

And, it's nearly impossible to zero out your net by reinvesting it all before some contrived deadline. Even if you could, it is very unlikely that allowing this artificial timeline to drive your investment also happens to represent the best timing or the most efficient allocation of capital.

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