What happens if the Trump corporate tax cut happens as Trump has proposed?
Let's just assume that the max tax rate goes only to 15%, otherwise the brackets stay the same. What would happen?
- The C-Corporate tax on $150,000.00 would drop to a total of $15,000.00 (The first $50,000.00 of corporate income is at a zero % rate).
- The taxpayer with a C-Corporate total taxes becomes $52,267.50.
- The S-Corporate taxpayer’s total remains $66,029.25.
- The difference is now $13,761.75 less. A swing of $26,750.00.
There would be a massive rush to move out of S-Corporations and back into C-Corporations for tax purposes among small business owners, resulting in a substantial increase in the profitability of the small business.
Effect on Regularly Taxed Corporations
Just like S-Corporations prices will fall in competitive industries as companies compete for clients and sales. A major boom for the economy as Corporations stop being such a huge conduit for tax collections.
All that extra tax collection will be available in lower costs to consumers or higher Corporate investment in jobs, goods, and equipment or higher dividends for their stockholders.
Corporations from all over the world will want to headquarter in the US. With one of the lower tax rates in the world, companies will want to be in the US again.
Inversions will disappear. The only reason US Corporations seek inversions is that of US tax rates and policy. The rates are some of the highest in the world, so corporations stay away from the US. With a maximum rate of 15%, America will become the desired home for many corporations around the world. The US government will stop worrying about inversions, but foreign governments will have to start worrying that their homegrown companies will do an inversion into a US subsidiary.
Corporate Income Repatriation and Worldwide Income Taxation
The US does not currently tax all income a corporation makes worldwide in the year made. It only taxes it when it comes back into the US parent. Unlike most of the world that taxes their companies’ income worldwide every year.
Trump is proposing a one-time deemed repatriation of all income currently held over seas which would allow the US parent corporation to use that money in the US for expansion, dividends or any other purpose. The estimate? Trillions of dollars will flow back into the US immediately and hundreds of billions of dollars into the treasury. US corporations would go to the world’s standard of worldwide taxation of all income on the corporations US tax return to prevent the buildup of income held overseas. The result? Billions of dollars added every year to tax revenue.