It’s a truism that reforming the corporate tax rates should encourage businesses to invest in ways to improve their bottom line. That normally means finding a way to enhance productivity. But, that also means the lower rates are part of a program to remove special interests.

But, at this point in time, one would expect productivity increases to need government involvement (meaning investment) and that means taxpayers need to ante up cash to pay for them. We need better health care so workers are not absent and also working at peak efficiency- and that also takes money. So does training our workforce to better their skills. Of course, government-funded research (basic research is the job of our government; applied research is the job of our corporations) needs money, too. Not to mention infrastructure, so that we can transport our goods and services more efficiently.

So, just dropping rates actually will run counter to improving business performance and their return on assets. Which is why my proposed plan (Multi-Nation Compact [MNC]) achieves these results better than anything else I’ve seen proposed. (It doesn’t hurt that many European and Asian nations- members of the OECD [Organization for Economic Cooperation and Development] have agreed to employ a very, very similar program [Base Erosion and Profit Shifting (BEPS)] for their national tax laws starting next year.)

What BEPS and MNC do is account for the contributions each nation provides a taxable entity- based upon payroll, gross revenue, and assets. And, these programs wipe away some 3000 bilateral tax treaties that simply complicate life for multinational entities.

And, these plans don’t affect firms that don’t have sales outside their national boundaries. Except for the fact that the overall tax rates are lowered. My plan erases that touted 35% maximum corporate rate that very, very few firms ever pay. (The only ones that routinely do are law firms that are corporations- that rate is set by law at 35%. It’s also why so many law firms no longer form PCs (professional corporations), choosing S or PLLC (professional limited liability companies) instead.)

For those of you who don’t recall (or have not been reading my blog for the past five years or so- shame on you!!!), my plan mimics the multi-state compact that obtains in the US. Those of us who operate in more than one state have to compute our sales, assets, and payroll in each state of operation. And, determine the ratio of those sales, assets, and payroll to the gross numbers for the firm. (This denotes the contribution that operations in that state provided the firm.) The three numbers are averaged out- and that percentage is the portion of the applicable state tax rate one pays.

The same thing would now apply for national sales. Discerning the contribution of each nation to the overall performance of the business entity. If the US tax rate is 25% and its contribution is 50%, then the federal tax would be 12.5% of net income. If that same corporation found that Germany provided a 25% contribution, then with the corporate income tax of 15%, the tax rate for that firm would be 3.75% of their net income.

Moreover, the tax reform should stipulate that if, 2 years after adoption, corporate taxes are 25% higher than they had been (because there is no way to hide money overseas under this program), the tax rate drops 1% across the board.  And, continues to do so for 10 more years, if the collections continue to be 15% higher than the previous year’s collections.  To make the tax rate is fair and balanced.  (Really.  Not like the Fake News station.)

So, please send this blog (or the letter below)  to your congressman and Senator. Because America needs a good, honest, balanced tax system.

If you feel the same way I do, I’d be honored if you wrote your Senators and Congressperson.   It’s how this program will be adopted sooner.  Because, we will be forced to react to BPAS that Europe and Asia are enacting within 5 years, anyway.

Here’s the sample letter, with my two attachments.

US House of Representatives, Addresses for letters

US Senate, Addresses for Letters

Sample letter

Attachments