The United States is addressing the seemingly annual unicorn
of legislation, tax reform and profit repatriation. American Stalwarts such as Amazon
and Apple are in the sights of two competing forces, the U.S is staking out the
position of allowing companies with profits abroad, a one-time tax waver to
bring profits back home. While the E.U is putting the squeeze on countries such
as Luxembourg and Ireland to collect the taxes that are owed by these companies
to the tune of $293 million and $15.2 billion respectively, and this is giving
these companies incentives to move those profits back home to avoid huge tax
bills that have built up over time. The new proposed corporate tax system would
tax only money that is earned in the United States, bring the rate down from
35% to 20%, which would be contingent upon repatriation. This is not a new phenomenon,
companies have always sought tax havens abroad such as the Cayman Islands in
order to soften their tax bill, what would be the effect of this proposal on
the U.S economy, in terms of domestic investment? Increased employment?
I think the effects on the US economy will be good for investment, but it may be too little too late. Corporate tax inversion has become more and more popular since the turn of the millennium and has favored well for economies like Ireland – who offers a 12.5% tax rate and experienced a 26.3% economic growth rate in 2015. The reason why so many businesses have relocated their headquarters outside of the US resulted from America’s dysfunctional tax system. With one of the highest corporate tax rates that also levies on a company’s income regardless of where in the world it is earned (many countries only tax income earned within its borders), it’s no wonder why firms elected not to bring their profits back home. I think the solution to lower the tax rate to 20% is definitely a step in the right direction, but more still needs to be done in order to incentivize companies like Amazon, Apple, Medtronic, or Johnson Controls to exchange a 12.5% rate for a 20% rate. Perhaps only taxing profits earned domestically would be start.
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ReplyDeleteLowering the tax rate would be beneficial for the corporations and be a good incentive for them to return or stay in the U.S., which optimally could lead to some economic growth for the U.S. However, as Cory mentioned it might be too late and that would only fix a part of the problem. A company like Apple who does business everywhere has a high demand for their products. They require a lot of manufacturing and manpower to produce their products, which China has the land and capability to produce. To move their production to U.S. who have a higher wage then China would lead to higher costs for them. Then there’s the problem of distribution and shipping the Americas have around 36% of Apple’s revenue the rest are in Europe and Asia which then again would lead to higher costs. So, a company like Apple would not want to manufacture in the U.S. If U.S. did lower to its tax rate extremely low, which would not be a good idea either, and companies returned many of the jobs would be automated. So, employment rates would only increase a little.
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