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GOP Tax Plan IV

The US corporate tax rate is currently 35% (on profits of more than $335,000). That is before deductions and loopholes. The after loophole rate is effectively about 18%. 18% is what corporations are actually paying, on average. Some pay zero, or even a negative rate (GE is famous for this). Some pay the full rate. And many very large corporations pay nothing, because they book all of their profitĀ offshore in a jurisdiction where it is not taxed.

But never fear, the GOP has a fix for all this. The Republican plan will take the corporate tax rate down to 15% – while keeping most of the loopholes and deductions (meaning the rate corporations – and especially very large corporations – actually pay will be much lower). And on top of that it introduces a new tax of 10% on foreign profits (also reducible through loopholes).

There are two problems with the new foreign profit tax. First, rather than punish off-shoring, it actually ends up incentivizing it. Right now you can avoid paying taxes on foreign profits, but the money is trapped overseas. You can’t use it in the US, because bringing it back makes it subject to taxes. So only the biggest, richest companies can take advantage, and they end up stuck with a bunch of cash they can’t do anything with. However, under the new plan you get to bring the money back by paying an even-lower-than-normal tax on it. As a result even the smallest companies will have an incentive to create an Antigua holding company, book their profit there, pay the bonus even-lower tax rate, and then bring the money back to the US free and clear. So the percentage of profits that go that route will go way up. And second, it is a huge giveaway on the trillions of dollars of corporate profits that are sitting untaxed overseas, since they can come back at a super low rate, rather than at the rate in effect when they were earned.

So the real tax cut is actually much deeper even than what is advertised, and the primary beneficiaries will be shareholders. For reference, the top 5% of the population own 73% of the financial wealth in the country. So not only are their personal taxes of the top 5% projected to be much lower, they are also being handed a windfall of bonus earnings through their financial holdings.

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