Tax Rates S&P "50"

Tax Reform? Here’s the first item on the agenda.

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I promised you yesterday, I would discuss my tax proposal.  Again.  And, maybe now that everyone seems ready to talk about a better tax system, this concept can move forward.

I’ve discussed ways to make corporate taxes more fair and inclusive for years.  The fact that I don’t work for the government or have no desire to hold public office does not mean I neither know nor have valuable ideas.  This method of taxation is absolutely critical, one that should be adopted so our government (and other world governments) will be able to stop the erosion of capital (and jobs, as well as tax revenue!) from the shores of the countries from which these funds were earned.

Tax Rates S&P "50"

 

And, as I’ve continually stated, it’s only the smaller companies in the US that get saddled with those bandied-about 35% tax rates.  Most of the Fortune 500 entities pay 12%, 10%, 5% or NOTHING into the US treasury.  (Just look at the list above- and remember those are TOTAL taxes- federal, state, local, and foreign!) Which is why, over the past quarter century, the contribution of corporations to the US treasury has dropped to something on the order of 10% of the total revenue collected by the US government.  With the citizens in the lower middle class and the poor ending up anteing 45% of the total.  And, with the rest of the citizenry of the US (and foreigners subject to US taxation) covering that last 45% portion.

From Where Do Our Federal Dollars Come?

You’ve also been reading how some US based companies are acquiring mini-companies in other tax jurisdictions, so they can renounce their US citizenship and, therefore, avoid paying even the 5% tax rate they currently pay. (That would be Pfizer as an example.  And, why is it corporations are allowed to do inversions- but not humans?)  These tax inversions are now subject to some new executive regulations.  But, it’s not clear that Mr. Trump won’t reverse Obama’s rules.

But, my tax plan would relegate such shenanigans to the trash heap.  Because they would render them of no value whatsoever.  And, Europe and the developed nations of the world want to adopt a plan similar to mine.  Because it is not just from the IRS that these corporations are hoping to hide their dollars, but from every major country’s tax authorities.

Which is why the OECD (the Organization for Economic Cooperation and Development) has developed a plan akin to mine.  One they call BEPS.  Base Erosion and Profit Shifting.

Base Erosion and Profit Shifting (OECD)

I call my plan the Multi-Country Tax Compact.  Because it is based upon the Multistate Tax Compact that exists in the US- which ensures that each company pays its fair share of taxes to the various states where they have operations, sales, and assets.  This has been the practice for multi-state businesses for decades.

Basically, the Multi-State Tax Compact stipulates the company computes the percentage of payroll (compared to all states), percentage of revenue (compared to all states), and percentage of real estate and other corporate assets rented or owned (compared to all states). These three ratios are then averaged to determine what percentage of the state tax rate is due. (If one operates in only one state, then it’s 100% for each of the three ratios- or 100% of the state rate.)

Proposed Corporate Tax system

The same concept should apply to worldwide entities. But, now instead of averaging the results for each state, we do so for each country.  And, that percentage is then applied to the appropriate national tax rate.  (If an entity operates in only one country, it would pay 100% of the appropriate national tax rate.)

I really don’t care if the plan is called MCTC or BEPS.  I only care that it’s implemented.  (According to the OECD that will happen in Europe sometime over the next two years or so.)  Because those newly collected tax funds will let us- and every other country in the world- maintain their infrastructure- and afford these same countries the ability to change personal tax rates- because the proportion of funds collected will afford each nation the ability to lower personal tax rates, without decimating the national treasury.

Proposed Multinational Tax Schedule
This image is linked to a sample form that explains the tax situation

Now, I am not naïve.  I understand that this is going to raise a lot of revenue for the US Treasury.  (The same will apply to other developed nations who adopt this program or the OECD version.)  Money that has been too long sheltered from the proper tax collections.

Current and Proposed Corporate Tax Rates

So, I also propose that this proposed tax reform stipulate that as corporate collections of taxes increase by more than 100% over the first two years, then the tax rates be automatically reduced 1% permanently across the board.  (Meaning the maximum rate becomes 28% and the minimum 9%.)  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 27%).

You notice that this drop does not require another act of Congress.  It will be automatic.  It will keep the tax rates equitable and not excessive.  The plan will ensure that a fair tax will be collected from multi-national firms, and these new corporate tax collections will adjust  the ratio of funds contributed from 10, 45, 45 (business, poorer, top earners- as shown in the second picture on this blog) to 25, 35, and 35-  with a bigger pie (tax collections)  overall.

It’s way past time.

 

 

If you feel the same way I do, I’d be honored if you wrote your Senators and Congressperson.   It’s how this will be adopted.  

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

US House of Representatives, Addresses for letters

US Senate, Addresses for Letters

Sample letter

Attachments

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3 thoughts on “Tax Reform? Here’s the first item on the agenda.”

    1. I think the GOP has a strong desire for tax reform. And, if you look carefully at this program, it removes the incentives for American firms to abandon our shores and take the jobs elsewhere. That’s part of the attraction. Claiming to lower rates is the other. (Even though the data demonstrates that most of the these companies pay virtually NO taxes to the Federal government right now.) And, collecting more money from corporations means the personal tax rates can be lowered, too- since it would be almost revenue neutral.
      But, Alana, we shall see!

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