International Tax Agreement Means High Uncompetitive U.S. Corporate Tax Rates!

Discussion in 'Economics & Trade' started by JimfromPennsylvania, Jul 4, 2021.

  1. JimfromPennsylvania

    JimfromPennsylvania Active Member Past Donor

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    The Biden Administration has been touting as a stellar development this International Tax Agreement sponsored by the OECD (Organization for Economic Cooperation and Development) which seeks to establish a minimum 15% on corporate income by countries world-wide . Their cheerleading exhibition about this agreement is that this agreement will free the United States from having to worry about foreign countries making their corporate income tax dramatically lower than the United States so as to pull Corporations headquartered in the U.S to be headquartered in the lower tax jurisdiction. This is all a dangerous smoke screen to try to facilitate President Biden and the left wing to raise America's corporate tax rates to make them high rates and uncompetitive rates their pitch is America no longer has to worry about U.S. Corporations leaving America and becoming foreign corporations with this international deal.

    What the Democrats are offering is dangerous because it gives the American people a false sense of security, it does not remove the danger of U.S. Corporations leaving America for dramatically lower tax jurisdictions. This international deal as it stands now has 130 countries prepared to sign on to it which leaves a lot of countries available to offer attractively low tax rates and everyone can be assured that Corporate Executives and big players in the financial industry will identify and nurture these very low tax jurisdiction so they can have big pay days moving corporations to such jurisdiction; plus this international deal at the end of the day requires voluntary cooperation by the signatory countries and because corporation financial involvement in a country is so valuable to a country the world will see even a signatory country succumb to the temptation to pull international corporations into their economic sphere by offering a low corporate income tax rate. The terms of this international deal are further alarming because this deal will obligate America to either exclude the profit stream being taxed in a foreign jurisdiction from being taxed by America or obligate America to to give a tax credit to the respective corporation for taxes paid in the foreign jurisdiction. This obstructs the optimally good strategy which America with its tax code should adopt to stop U.S. Companies from off shoring manufacturing and service businesses which is make the tax rate on foreign earnings half the tax rate on domestic earnings the respective corporation can treat the foreign tax paid as a legitimate business expense and deduct it from the corporation's earnings to produce an accurate profit number from which the U.S.'s tax rate will be applied which will largely eliminate the economic advantage for a business to move operations to a foreign country.

    Nothing here should be interpreted as advocating against the Democrats moderately changing the U.S. Corporate tax code to raise revenue to fund programs that reduce the inequities in America. The Republicans with their 2017 tax reform bill went way past making America's Corporate Tax Rate Competitive they gave a financial windfall to corporations; if truth be told President Trump really screwed up the tax reform effort with his push to make the effort a Trump Tower type of scenario, bigger than ever, - if they just implemented the bi-partisan solutions that had been commonly discussed for the prior ten years they would have hit a home run! In any event, the media reports are that moderate Democrats want the Corporate Tax rate to be twenty-five percent that is spot on! Not too much other than that has been reported on what the moderate Democrats want but good policy changes would include changing the GILTI tax. Which has a special tax rate for income a corporation derives from its foreign owned patents, trademarks and copyrights where corporations get to reduce this income stream by ten percent of the value of these intangible assets and then on the balance of income the tax rate is ten percent. What justification can be found for giving corporations a ten percent ROI (Return On Investment), why doesn't everyone get that on their investments; the tax code should just get rid of this exception this foreign income should be taxed like all other foreign income streams. America would be best served by getting rid of the FDII (foreign-derived intangible income deduction) what this essentially is involves the treatment in the tax code of income derived from foreign sales of products and services domestically produced what corporations get to do is reduce this income stream by ten percent of the value of the domestic assets involved in creating these products and services that they get to reduce this balance figure by thirty-seven and a half percent and then the Corporation applies the U.S. corporate tax rate to this remaining figure. Besides the unjustifiableness of giving the corporation a ten percent ROI which they don't have to pay taxes on the 37.5 further reduction is just too generous to corporations. The rationale behind this whole tax treatment is they want to incentivize corporations to keep their domestic manufacturing and service facilities in the United States; good goal why doesn't Congress do this by just allowing the corporation to reduce its foreign income by twenty-percent that should go a long way to eliminating the benefit a corporation could avail itself by off-shoring the respective business!

    There is some good reasons to pursue and international agreement on taxation. It is not right these big tech companies make a pile of money operating in foreign countries and pay little or no taxes in such countries; international law should protect countries in regard to taxing Multi-national corporations earning income in their country. It would help economies throughout the world if there was an international agreement to have a good floor on Corporate tax rates it would help stop this counter productive competition for countries establishing a corporate tax rate. Lastly, in the discussions for this international agreement, parties need to stop with this double taxation argument, this is like the meritless double taxation label when countries have a corporate income tax and a corporate dividend tax; there is different circumstances in the latter different entities being taxed in the former different jurisdictions doing the taxing!
     
  2. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I never even understood why corporate profits need to be taxed. That is like double taxation. Aren't those profits going to be taxed anyway when they become someone's individual income?

    To make matters worse, a Chinese company can still sell products in the US and not have to pay US corporate taxes because the corporation is not actually in the US.

    They can just use some intermediary corporation, and only a tiny percent of the money will end up getting taxed. (If an intermediary corporation buys something from China for $100 and then sells it in the US for $101, they only pay corporate taxes on $1, even though that company in China might be making $20 in profit from the sale)

    Corporations will just hide in countries with no corporate taxes, and use intermediary corporations to move their products & services through other countries. For example, even if China has the same corporate tax rate as your country, there's no guarantee what you are buying was not just created by a corporation in Vietnam, who doesn't have to pay corporate tax on their profits. The corporation in Vietnam sells to a corporation in China, who in turn sells to a corporation distributing those products in the US.
    A company entirely manufacturing and based in the US can't compete due to the tax laws.
     
    Last edited: Jul 8, 2021

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