How might changes to the corporate tax code impact my business?
Most Americans are in agreement that the system for taxation of businesses in our country needs revamping. The United States has one of the highest statutory tax rates for corporations, but collects less money than most other countries. The current tax code incentivizes businesses to take out loans and move operations to other countries. Now, with a Republican president, House, and Senate, overhaul of the tax system seems imminent. Major changes to the tax code could have implications on a national and global scale, as well as an impact on your individual business.
Changing What We Tax
Currently, the American tax system collects tax based on corporate income. The problem is that there are numerous methods corporations can use to reduce their reported income and tax burden, often by moving property overseas or changing the corporate headquarter to a country with a lower tax rate. House Republicans have proposed changing the entire way in which we tax businesses. Rather than taxing corporate income, we would tax a company’s domestic cash flow. Money generated from sales within the United States would be taxed at a set rate.
Benefits to this type of taxation could spur business investments by removing the incentives for companies to rely on debt. Further, companies would benefit immediately from tax savings. Internationally, the new system could have a global impact. American companies would not pay taxes on international sales, but would be taxed on imports. While some believe this could positively impact exports and reduce the trade deficit, other economists believe that the value of the dollar will rise in currency markets. A stronger dollar could equalize the trade balance.
As politicians and economists grapple with the widespread implications of a corporate tax overhaul, business owners worry about how they could be affected by the change. For businesses that rely heavily on imported products, the new law could have negative effects, while other businesses may find themselves paying less in taxes. Corporate law attorneys are reviewing all potential outcomes of the change in the law to prepare their clients and strategize tax savings.
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