Donald Trump’s proposed tax holiday would save the US’ biggest companies hundreds of billions of dollars, new research suggests.
Mr Trump’s plan to allow corporations to repatriate their offshore holdings at a lower tax rate would save the country’s 50 biggest companies between $312-327bn, Oxfam reports.
US tax code requires American corporations to pay taxes on any money earned overseas. But loopholes allow companies to avoid taxation on these funds if they never bring them back into the country.
Because of this, many of the US’ most profitable companies keep the money they earn outside the US in countries like Ireland, which have lower corporate tax rates. Oxfam estimated the 50 biggest US companies have a combined offshore cash pile of $1.6tn — $560bn of which they owe to the US government.
Mr Trump has proposed giving these corporations a one-time chance to bring their money back into the country at a tax rate of 10 per cent — substantially lower than the usual 35 per cent. Mr Trump claims the influx of cash would boost the US economy and spur job growth. It is also crucial to funding his much-touted infrastructure plan, which could cost up to $1 trillion.
Past tax holidays, however, have not been kind to the US economy. After the last corporate tax holiday in 2004, a Senate investigation found the top 15 companies benefiting from the break cut more than 20,000 jobs and cost the US Treasury around $3.3 in lost revenues. The dollar strengthened about 13 per cent the next year, but most economists credit this to the Federal Reserve’s decision to almost double its benchmark interest rate.
While it may not boost the US economy, Mr Trump’s plan could encourage corporations to continue holding their earnings offshore in between tax holidays — and give them the funds to lobby for more. According to the Oxfam report, this means more of a tax burden on American citizens and small businesses.
“The losers in this rigged game are small businesses and working families who don’t have the means to shift profits among hundreds of offshore subsidiaries or the ability to deploy armies of lobbyists to preserve their favourite tax loophole,” the report reads.
The proportion of federal revenue paid by corporate taxes has dropped from $1 of every $3 in 1952 to $1 of every $9 in 2015, according to the Office of Management and Budget.
Meanwhile, payroll taxes — which disproportionately affect low-income workers — have increased by more than nine per cent in the same time frame.
Other tax reforms proposed by Mr Trump include reducing the corporate tax rate to 15 per cent from 39 per cent — a rate Mr Trump has called “the worst in the industrialised world.”
“On the corporate side we have a big problem with a tax rate maintaining and growing businesses here,” White House Press Secretary Sean Spicer said in an interview on Wednesday. “[Businesses] are fleeing our country.”
Mr Trump said tax reform is his next priority after passing a new health care plan.
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