It’s that time of year again.  Where every Senator, Congressman, Businessman clamors for tax reform.  Which really is never about tax reform, but about making the playing field more beneficial for someone (their special someone).

Well, I am going to wade into the fray.  With a really novel (only for federal purposes) concept- and a kicker.  And, I’m hoping you feel it makes sense, too- so you will write your newspaper, your Congressperson, your Senator, and our President to make this the rule of the land.

First, a few facts.  One which you always hear- that the corporate tax rate is too high- and  that it’s 35% of gross profits.   (I discussed this recently.) The problem is that this is the tax rate paid primarily by small companies, who don’t hire the best tax advisors- or professionals who own their own corporations (their tax rate is set statutorily at 35%).   Most bigger firms pay tax rates that range from 0 (yes, ZERO) to 15%.  So, let’s stop discussing fictional events.

Second, the corporate tax rates are difficult to understand.  Well, the various provisos (R&D tax credit, special depreciation, etc.) that offer discounts to the taxes due are, indeed, more complicated than a straight percentage rate- but I don’t see many firms not availing themselves of the work to save significant tax dollars.  (That would be like an individual saying he won’t figure out how much mortgage interest and real estate taxes he paid, because itemizing is too difficult- thus paying higher taxes).

We have already seen (and I have already discussed) that most corporations use all sorts of ruses to minimize their taxes.  Now, I won’t argue with the basic premise (you are welcome to your own opinion), but I do set the line when a company claims revenue (and profits) in a location where they have NO employees.  That is akin to the practice of using tax havens around the world to hide funds from taxing authorities.

So, my approach to rationalize our tax structure is to lower the maximum tax rate from 35% to 25% immediately.  And, make the lowest tax rate not 15%, but 10%.  With grade increases (and these are less cut in stone) to 15%, 18%, 20% and 22%. Keeping the 25% bracket for all firms with taxable revenue of $ 10 million or higher.  But, adopt the approach employed by the various states here in the US and the Multistate Tax Commission.

What does that mean?  For domestic only corporations (that is most of the smaller ones), it means no extra work or computations.   These domestic firms only generate sales and profits here in the US.  So, there’s nothing more they have to do.

For those companies with operations outside the US (be they North America, South America, Asia, Australia, Europe, or Africa), this will be a major change.  They will have to report their worldwide figures for employee payrolls (not contractors!), the square foot rented and owned for each of their offices, and the gross revenue (not profits) they make.  Oh, and the same values for those operations within the United States.

Then, a little math (very little math).  One divides the ratio of each of these three components (payroll, “space”, and revenue”)- what was due to the (or because of the) US operations) by the world wide figures; then employ the average of those three ratios for a blended percentage.  That percentage (which will range from some number up to 100%- but we already said that solely domestic corporations will be taxed based upon 100% of their profits because they are all US based) will be the percentage of the appropriate rate based upon their profits that will be due and owing to the US Treasury.  Examples are found in this chart below. No more will companies like Apple be able to claim sales in the US were non-taxable because the profits were developed by a zero-employee outfit in Ireland.  Yes, Apple will have its tax rate lowered because of employees they have overseas.  But, then, again, most of those Foxconn Technology (really, it’s Hon Hai Precision Industry Co.) folks in China are just contractors- and that won’t affect these computations.

Now, I am not naïve.  I understand that this is going to raise a lot of revenue for the US Treasury.  Money that has been too long sheltered from the proper tax collections.  So, I also believe that this proposed tax reform stipulates that if corporate collections of taxes increase by more than 100% over the first two years, then the tax rates be automatically reduced permanently by 1% across the board.  If the trend continues and the collections  are still more than 75% higher over the first three years (after this reduction in rates), then the tax rates should be automatically reduced by an additional 1% (thus making the rates range from 8 to 23%).

It’s about time that the US receive its fair share of taxes for the markets, the technology, the production, and the know-how that we offer each and every company that garners sales in this country.  Don’t you agree?  So- write your Congressperson, your Senator, and the President- now!

(You may have noticed that I fully expect a major increase in tax revenue collection.  Those are the funds that have been hiding overseas using various shenanigans by the big companies- who try to claim they are international or transglobal- until they want sales and tax benefits offered to them.  There will be neither penalties nor benefits for this husbanding of profits overseas.)

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