Tax Reform: A Hot Topic
5/7/2013 - By Lisa Fairbanks, CPA
Lately, popular terms such as "tax reform" and "simpler and fairer tax code" come up as the President and Congress work on budget proposals. The question is will we see any significant tax reform or will this congress continue to "kick the can down the road". One of the Senate Democratic budget guidelines is to "reform business taxes to help U.S. enterprises compete and ensure America remain the best place to start a business and create jobs".
The US has the highest corporate rate in the industrialized world; 35% for regular C corporations. Where the US does offer incentives, such as the Research & Experimentation Tax Credit to reward businesses that innovate, these incentives are short lived with the current credit expiring at the end of 2013. With the highest tax rate in the world and limited tax incentives, it is difficult to see how US enterprises can compete with the rest of the world.
The House Ways and Means Committee discussion draft proposed reducing the top corporate rate from 35% to a 25%. There is a debate over the "cost" of this proposed tax decrease. The rule of thumb on cost is for every 1% reduction in the corporate tax rate, it costs the US coffers $100 billion in taxes over 10 years. But is this really the cost? Lower tax rates would benefit the US economy in couple ways:
- US exports are cheaper - Everyone knows taxes are directly passed on to consumers which makes our exports higher-priced and less competitive
- More investment by multinational corporations in the US vs. offshore.
These two benefits would create additional jobs in the US. With more individuals working, the individuals will be paying income taxes instead of the corporations. Also, these additional workers will be purchasing more goods and services. Lastly, more US jobs will result in a reduction in the amount of unemployment benefits paid out. So what is the real cost of the highest corporate tax rate in the world?
Does your company innovate? Give us a call at (800) 477-7458 today to see if you qualify for the Research & Experimentation credit!
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