So far this week, I’ve explained why tax reform hasn’t happened  (Tuesday) and how businesses have been ripping off America by paying their employees so little that the US and the States have to subsidize these employees with aid (Wednesday).

It’s pretty clear that changing the tax code will be tough.  Because one man’s (woman’s, company’s) loophole is another’s absolute requirement.  And, choosing among these “benefits” is a decision that no lobbyist-plied Senator or Congressman wants to make.

But, there are still ways we can lower the corporate tax rate.  Not that most companies pay those oft-claimed 35% tax rates.  Actually, it’s mostly smaller firms that have no means to pay the specialists to manipulate their tax reporting- or the professional corporation which has a stipulated 35% tax rate.  Most corporations pay between 0 and 25% of their net income incomes (and way too many pay at a 0% rate).

Let us also not forget that corporations are not paying their fair share of the total tax bite of this nation.  Contrary to what you hear bandied about, corporations only provide 10% of US tax receipts!  Social Security and Medicare receipts yield about 45% of the total, with individual income taxes providing the rest.  Which is exactly why we don’t have enough money to support our infrastructure needs.

We can start by taxing all companies who garner revenue in America for the benefits they accrue in this country.  That means a company like Siemens, which is not a US entity per se (it has a US subsidiary) , but has US sales, US employees, and offices and plants in the US, must pay its fair share of taxes.  And, Apple needs to do the same.  Regardless of whether it keeps money in tax havens overseas.

How would we do this?   By  adopting a worldwide tax code that matches the current Multistate Compact (MSC) that applies in the US (in existence since 1966).   Basically, the income of the entity is adjusted to reflect the percent of sales in the US, the percent of payroll in the US, and the percent of property owned or rented in the US.   The formula is found below.

First let’s explain how companies with only US operations won’t be affected.  As you can see, each of the red boxes will be 1 for a solely US based operation.   And, the factor- after dividing the sum by 3 will be 1- it will only pay the same tax it would have without the tax change.  (This would be true for virtually all the small businesses in the US.)

But, a firm with 1/2 its sales in the US, 1/4 of its payroll in the US, and 1/3 of its property in the US will produce a factor of  38.1%.   And, if it’s taxable income were to be $ 1 million, then it would be taxed at 38.1% of the 35% rate or 13.4% of its net income.  It would owe taxes of $ 134,000.

This also will stop companies from being able to shelter some $ 2 trillion overseas.   Which they “hide” from the IRS, claiming their intellectual property was developed in Ireland or from companies based in Luxembourg.  Yeah, right.

But, assuming that the $ 2 trillion was accumulated over 10 years, that’s $ 200 billion a year that companies make without paying taxes. Which is why once this system is adopted, it needs to incorporate an automatic reduction (1% per year) in tax rates  (for ten years) each year the IRS collects 50% more in collections than it did the previous year.  Which means, by my calculations, that the maximum tax rate will drop from 35% to 25%.

Now, it won’t make a difference it they try to hide money overseas (right now, if they don’t repatriate the funds, there is no tax), and their tax rate will only reflect what portion of their profits were derived from their sales within the US.

How’s that for fair and balanced?

Do you know I wrote about our economy and taxes last year? If you want to learn more about these matters, you might want to pick up a copy of the book.