
Trump Wants Tax Plan to Cut Corporate Rate to 15% - fmihaila
https://www.wsj.com/articles/trump-wants-tax-plan-to-cut-corporate-rate-to-15-1493057898
======
pavlov
Finland tried this same thing with the same "dynamic effects will offset lost
tax revenue!" rhetoric a few years ago, and it didn't work out anything like
expected.

At the start of 2014, Finland lowered its corporate tax rate to 20% (from a
previous 24.5%). The lost tax revenue amounted to $800M EUR, but the
government claimed that half of that would be recouped thanks to positive
dynamic effects the tax cut would create in the national economy.

Two years later, they were forced to admit [1] that none of those dynamic
effects materialized.

Cutting corporate tax may still be a good thing, but it's most likely nothing
close to revenue-neutral anywhere in the developed world. So this plan would
expand the US budget deficit (which Republicans seem to hate only when they're
not the ones expanding it with tax cuts).

[1] [http://yle.fi/uutiset/3-7773569](http://yle.fi/uutiset/3-7773569) (in
Finnish)

~~~
mjfl
To play devil's advocate, Finland was giving sort of a vague argument for
their tax cuts: "dynamic effects", while in America there are very concrete
potential effects of the policy. You can point directly to Apple and say, "If
we cut tax rates to 15%, Apple will bring back $X to the USA", "Exxon Mobile
will bring back $X to USA", and so on. You can even... talk to them and ask
them what it would take to repatriate the offshore funds, and I would hope
Trump would do that. So yeah, I think it's one thing to cut taxes and hope
"economic growth" happens automatically, but a completely different thing if
you have a quantifiable number of offshore dollars, deals can be made, etc.

~~~
muninn_
Eventually that money will be either returned to share holders, or will be
invested in the business. You also have to consider that the government in
Finland is probably way less shitty than the US government.

~~~
mjfl
The money is already returned to shareholders offshore as equity in the global
company. I don't know what you are talking about.

~~~
muninn_
Sure but not through dividends or stock buybacks

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technotony
I think the big thing about this is that it will lead more companies to bring
capital back to the US from overseas where they are hoarding it. If they
either spend it or distribute it to Americans that's likely good for the
economy. It also improves the IRR for projects, which should lead to more
investment. Hopefully, it works to get the economy going.

~~~
JKCalhoun
Greedy companies are greedy. Lowering to 15% won't magically make them good
corporate citizens. The carrot and a really big stick are needed. I don't see
this admin taking a stick to corporate America.

~~~
Arnt
IIRC the Russians tried a 13% rate for a major tax and found that it worked
fairly well. If you hassle enough you can get below 13% (or 15%), but hassle
has its own cost.

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abhv
Lower corporate taxes can also help create structures which allow wealthier
people to avoid taxes.

For example, if you can create a structure in which all of your consulting
income + capital-asset income goes into a C-corp, and you pay most of your own
expenses through the C-corp (e.g., Trump tower home office), then you can keep
most of your income taxed at only 15%. The C-corp holds it forever, and pays
your expenses, and pays you a small salary for non-expensable items. The
C-corp can purchase things like corporate cars, boats, airplanes, and real-
estate, and pay for trips as well.

Obviously, there is administrative overhead in setting these things up; you
can't be earning 150k and trying to pull this off.

There cannot be a gap between C-corp taxation and individual taxation rates if
you want to avoid creating more loopholes for wealthier people---especially
those who earn mostly from their capital assets.

~~~
harryh
The IRS is not stupid. It's perfectly capable of distinguishing a real
business from a dummy business set up just to pay personal expenses. There are
all kinds of rules about this sort of thing.

~~~
abhv
If I own a software business that earns 500k-1m a year, currently, I can
organize as an LLC and induce pass-thru income that is taxed marginally at
~50% (federal, state, NYC). If I organize as a C-corp, I pay the corporate
rate which is also roughly 40%, and I also get double-taxed on salary and any
dividends paid to owners.

Under these new rules, if a C-corp gets taxed at 15%, there is a strong
incentive to pass all income through this C-corp, even after double-taxation.

~~~
542458
Actually, it's even worse than that. From Trump's tax plan:

> Right now, freelancers, sole proprietors, unincorporated small businesses
> and pass-through entities are taxed at the high personal income tax rates.
> [...] The Trump plan addresses this challenge head on with a new business
> income tax rate within the personal income tax code that matches the 15%
> corporate tax rate

They want to change it so S-corp income gets taxed at 15%, rather than at
personal income tax rates. Which is completely crazy, since every CEO in the
US will be forming an S-corp and passing all income through it to get a flat
15% "income tax" rate.

~~~
ed_balls
Many countries have that and CEOs don't set up this way. Illegal and bad for
PR.

~~~
harryh
What is an example of a country that is set up this way?

This part of the Trump plan I actually do think is completely bonkers so I
assume that it won't get anywhere.

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bpodgursky
0%, with raises to capital gains to offset the tax revenue, would be better,
but I can understand it's politically infeasible (because people are
ignorant). Better than nothing.

~~~
hn_throwaway_99
Yeah, to me it seemed to make much more sense to get rid of corporate taxes
entirely, and then just tax all dividends and capital gains at income tax
rates. Is there an economic (as opposed to political) reason this is a bad
idea?

~~~
cheald
Might raise too little revenue. But in general, if you want to tax capital,
you should tax capital, rather than taxing companies (which do a pretty good
job of offloading tax incidence onto labor.)

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JKCalhoun
The big problem with our high corporate tax rate is that the big corporations
have loopholes and don't pay anywhere near 30%. But the smaller businesses
don't have the tax lawyers and so do pay the full amount.

Hmmmm, this sounds familiar....

EDIT: typo

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civilian
My knee-jerk reaction is to be in favor of tax cuts, but with these things I
try to find relevant survey questions on IGMChicago Economic Experts panel:
[http://www.igmchicago.org/igm-economic-experts-
panel](http://www.igmchicago.org/igm-economic-experts-panel)

Here's one that's close, although it focuses on repatriated profits
[http://www.igmchicago.org/surveys/repatriated-
profits](http://www.igmchicago.org/surveys/repatriated-profits)

> _Question B: Permanently lowering the effective marginal tax rate on US
> corporations’ repatriated profits, such as by moving to a territorial-based
> tax system, would boost US capital investment significantly._

The economists' answers were very mixed and half of them answered "uncertain"
or "no opinion". :-/ muh cognitive bias!

mmanfrin points at that tax havens are the problem, here's a NYTimes opinion
piece advocating for 0% corporate tax rates as a way to encourage companies to
repatriate their profits: [https://www.nytimes.com/2014/01/06/opinion/abolish-
the-corpo...](https://www.nytimes.com/2014/01/06/opinion/abolish-the-
corporate-income-tax.html)

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mathiasben
Need to get back to the rates we had following the Internal Revenue Act of
1954. 51% corporate rate, that's what made America great.

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watertom
What a fucking joke.

Apple is sitting on almost 2250 Billion and they won't bring a penny of it
back to the U.S. because they don't want to pay some tax.

The rich people who are making the congressmen and senators rich are making
sure that the rich and the corporations are flush with money while 20% of all
children in the U.S are living in poverty.

Reagan was right it is trickle down, it flowed down at one time, now it
trickles, soon to drip.

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friedman23
I challenge all of those against this to learn what tax incidence is and how
it applies to the corporate tax rate

~~~
jellicle
Here you go:

[http://piketty.pse.ens.fr/files/Clausing2012.pdf](http://piketty.pse.ens.fr/files/Clausing2012.pdf)

"At the end of the searching, I find some evidence that suggests that
corporate taxation may lower wages, but the preponderance of evidence does not
suggest any wage effects from corporate taxation."

~~~
cheald
And counterpoints:

[http://piketty.pse.ens.fr/files/Desaietal2007.pdf](http://piketty.pse.ens.fr/files/Desaietal2007.pdf)

"between and 45 and 75 percent of the burden of corporate taxes is borne by
labor with the balance borne by capital. "

[https://www.kansascityfed.org/Publicat/RegionalRWP/RRWP07-01...](https://www.kansascityfed.org/Publicat/RegionalRWP/RRWP07-01.pdf)

"Using cross-country data I estimate that a ten percentage point increase in
the corporate tax rate of high-income countries reduces mean annual gross
wages by seven percent."

[https://www.treasury.gov/resource-center/tax-policy/tax-
anal...](https://www.treasury.gov/resource-center/tax-policy/tax-
analysis/Documents/WP-101.pdf)

"While further research is necessary to draw definitive conclusions, these
studies suggest that labor may bear a substantial burden from the corporate
income tax. Overall, the recent empirical evidence, the open economy
computable general equilibrium models of tax incidence, and the sensitivity of
the amount of capital investment within a country suggest reconsidering the
assumption that the corporate income tax falls on the owners of capital; labor
may bear a substantial portion of the burden from the corporate income tax."

------
cuchoi
Paul Krugman on Tax Cuts: "Zombies of Voodoo Economics"
[https://www.nytimes.com/2017/04/24/opinion/zombies-of-
voodoo...](https://www.nytimes.com/2017/04/24/opinion/zombies-of-voodoo-
economics.html)

------
nodesocket
The thing that most people fail to realize is that a lower corporate tax rate
helps the overall enconomy and all Americans. Companies now suddenly have
increased capital to spend on growth (hiring, R&D, and acquisitions).

Additionally it boost earnings which will likely increase most people's
retirement accounts and stock portfolios.

Typical that I'm getting downvoted without any rebuttal.

~~~
thrillgore
How much of the capital would realistically go to those, as opposed to
shareholder payouts?

~~~
dmix
Only a small percentage of companies are public and have CEOs making giant
bounces off of tax cuts.

This worldview that Bernie Sanders esque people hold, where every business
person is a rich multi millionaire, ignores the reality of business... where
the vast majority are small and medium sized businesses.

The critique of George Bush's temporary tax credit was that it was used as
bonuses rather than stimulating the economy. But a long term tax reduction is
something you can actually plan for with expenditures like R&D. I've seen many
people comparing the two disingenuously like they are the same. They aren't,
that's not how business finance works.

There have also been a number of examples in history where reducing the tax
rate has actually increased tax revenue as companies are much more productive
and more capital is available to invest in industry.

The more revenue companies generate the more taxable income there is both from
the company revenue and the incomes of employees they hire.

~~~
aanm1988
Didn't sanders tax plan involve closing loopholes used by big companies and
taxing the wealthy more heavily?

Neither of which would hurt your precious small businesses.

They would hurt the corporate overlords though.

~~~
dmix
> Didn't sanders tax plan involve closing loopholes used by big companies and
> taxing the wealthy more heavily?

Steve Mnuchin talked about closing these by simplifying the tax code during
his senate hearing. This was Ted Cruz primary pitch for his tax plan... and in
general on of the staples of tax reform people on both sides of the party.

Bernie Sanders also said he would be comfortable with a 90% top tax bracket
too, which completely failed when the socialist party tried to do it in
France.

Regardless, the goal should be increasing tax revenue, not tax rates. And the
US government already takes in a massive amount of money.

There's probably a million ways for it to be better spent and still
dramatically improve the social safety nets and offer public healthcare. Yet
whenever these goals are discussed it's always in the context of adding more
and more spending.

And re: closing loopholes, the usual result of these efforts such as Obama's
various attempts, were to add even more complexity to the tax code. There are
many ways to reach a goal. Just because you want lower taxes and a
dramatically simplified tax code doesn't mean I'm against social policies.

