Corporate Tax

The Tax Cuts and Jobs Act ought to cease tax evaders. That wasn’t the case, the examine says.

An important selling point of the Tax Reduction and Employment Act 2017 was that it would discourage multinational corporations from smuggling billions in profits into offshore tax havens and bringing that money back to the US, where it could create jobs and fuel economic growth. However, a current analysis comes to the conclusion that the tax reform has not been able to curb the inflow of corporate profits abroad.

The study by Javier Garcia-Bernardo and Petr Janský from Charles University in Prague and Gabriel Zucman from the University of California, Berkeley, found that the TCJA had little influence on the proportion of foreign income generated by US companies in tax havens like Bermuda and Ireland. From 2015 to 2020 – the years before and after the law came into force – this proportion was constant at around 50%.

“Congress has been catching up as entrepreneurs for decades, and a handful of tax havens have driven international tax policy,” said Zucman, a well-known expert on inequality, wrote in a New York Times comment this week summarizing the findings.

He added, “The result is a nation where working-class Americans are left with underfunded public schools and hospitals while the wealthy rocket ships fly into space.”


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The TCJA, one of the Trump administration’s major political achievements, has had a mixed reception since it was passed nearly four years ago. The bill cut corporate taxes, effectively lowering the rate for U.S. corporations by 10% – a move its proponents said would spur economic growth. Although most taxpayers enjoyed some tax break under the law, corporations and high net worth individuals did much bigger tax breaks as low- or middle-income families.

As President Joe Biden, the issue is once again the focus urges the increase in business taxes as a way to fund an ambitious plan to modernize the country’s aging roads, bridges, and other infrastructure.

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The first of its kind

The economists said they believe their study, which relied on tax data from the IRS as well as other government and corporate data, is the first to “empirically examine the impact of the Tax Cuts and Jobs Act” on profit shifting by US multinational corporations evaluates companies.

The TCJA cut the corporate tax rate from 35% to 21%, although many companies did paid tax rates below 35% prior to overhaul due to the use of common and legal techniques such as deductions and depreciation. At the same time, the effective tax rate on domestic profits fell by 10%, according to the study.

Multinational corporations that pay taxes in both the U.S. and other countries enjoyed a typical tax rate of around 14% in 2019, up from 19% in 2017 before the new law came into force, the researchers found.

The corporate tax debate comes as the Biden government works to introduce a minimum global tax of at least 15% with 130 countries and jurisdictions earlier this month to sign a contract that would impose such a tax on companies. The idea is to level the playing field between countries, although some countries have not yet signed up, including Ireland which has a corporate tax rate of 12.5%.

“It won’t be enough”

Zucman suggested that a global minimum tax rate of 15% would not go far enough.

“But even if Congress approves the 15% minimum global corporate tax rate, it will not be enough to close the growing economic gap between America’s rich and middle classes,” Zucman wrote. “Taxing multinational corporations at 15 percent would still face them at a lower tax rate than the average American pays state and federal income taxes.”

The solution, according to Zucman, is for Congress to raise the minimum corporate tax rate to 25%, which he believes would bring in an additional $ 200 billion in annual revenue that could be used to pay for a range of government services, including one free universal preschool and nationwide high-speed broadband.

According to Reuters, Finance Minister Janet Yellen is meanwhile pushing for a higher global minimum tax rate for members of the G20 countries, although a specific rate does not yet have to be set.

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