Trump's Tax Reform Philosophy
In pursuit of profit, a part of domestic IT companies strives to enter the American market (both B2B and B2C), some sell their services as companies from the CIS, or create offshore structures. But part of IT entrepreneurs choose the United States as the place of business registration.
Is it worth doing?
The tax policy of the state determines the social philosophy and the generally accepted values of its society. Public debates about the choice of philosophy and approaches to taxation are often fierce, and the opponents taking part in them are irreconcilable. Discussing and choosing the tax policy of the state, society, thus, discusses and chooses what it should be and what role should be assigned in it to the state.
“Only two things are inevitable - death and taxes,” wrote Benjamin Franklin, one of the founding fathers of America, and paying taxes is the most complex, tense and stressful relationship of a citizen with his state, regardless of his political views.American taxpayers, both conservatives and liberals, traditionally believe that, despite the fact that taxes are an integral part of civil society and the social contract between this society and the state, the US tax system does not cope with pressing tasks and needs fundamental changes . It is incredibly burdensome, inconvenient and too complicated and confusing for the ordinary taxpayer and business.
If the state’s fiscal policy determines the values and priorities of the nation as a whole, which of these values can we see in Trump’s so-called tax reform recently adopted by the US government?
December 22, 2017, the President of the United States, Donald Trump, signed the Law “On tax cuts and the creation of new jobs”(“Tax Cuts and Jobs Act”, TCJA), which:
- reduces the corporate income tax rate,
- makes taxation of ordinary Americans more understandable and is generally aimed at improving the economic situation in the country.
“Republicans care only for the rich”Over the past few months, many commentators and experts have expressed their views on this issue. Someone carried the reform to smithereens (mostly Democrats), and someone with all his strength extolled its advantages (mostly Republicans). But while the majority relied on the mantra common in America: "Republicans care only for the rich."
By digging a little deeper, we will be able to see signs of a cornerstone value that Trump’s reform is stitching with a red thread, and which is fully consistent with the long tradition of the American center-right elite. Having understood it, we will be able to form for ourselves a clearer picture of this reform.
Supporters of Trump's tax reform follow the “Laissez-faire” economic doctrine and believe that government intervention in the activities of free market participants should be minimal. What can not be surprising, because Trump is primarily a person from business, and not a professional politician or official. According to supporters of the reform, reducing the tax burden for wealthy citizens, as well as lowering tax rates on real estate and corporate profits should lead to an increase in market activity , and a decrease in mortgage interest and cuts in tax benefits at the state and municipal levels, wean the state from the harmful practice of intervention in pricing processes.
The tax cut envisaged by this reform significantly limits the state in terms of spending cuts, which is increasingly vigorously and widely discussed in society and the media.
Nevertheless, according to some estimates, the reform may lead to the excess of expenditure over income in the very foreseeable future.
How will this budget deficit be filled?Republicans argue that budget cuts, especially for all sorts of benefits and social benefits, should solve the problem of budget deficit. In other words, Republicans say that tax reform should give impetus to reducing government spending and minimizing restrictions for economic actors, that is, business.
Proponents of reformthey believe that the fairness of the taxation policy lies in how much tax the taxpayer will contribute to the budget (the less, the better for the taxpayer), and not in what benefits he can use at the expense of the state. At the basis of this, as it seems at first glance, not very important distinction, lies a huge difference in how people with right and left political views see the development of the American economy and society.
LeftAs a rule, they emphasize that all members of society are “in the same boat”, and the state is just a tool for distributing risks. And therefore, their test of the fairness of the tax system is the size of the share of the resources of society, to which each individual citizen or family has access. For those who adhere to such views, progressive taxation is the obvious and only right choice, especially in an economic environment like the US, where economic inequality is especially noticeable and continues to grow.
Conversely, the position of the rightis that all members of the society “in the same boat” turned out to of their own free will and the state exists to distribute expenses. For people with such a point of view (mainly Republicans for their mass), the important point is that taxpayers pay a fair share of taxes based on the principle of “equal sacrifices” and on the benefits and privileges they receive from the state. This approach limits the distribution of resources among the population and has a less progressive tax structure, which we see in the example of Trump's tax reform.
Since the beginning of the reform, the Trump administration has focused on a significant reduction in the single tax rate for corporations - from 35% to 21%.in order to bring it closer to those of countries such as Canada (15%) or Ireland (12.5%) and to make the US more attractive to investors. Also, since 2018, Trump's law abolishes the minimum alternative corporate income tax for corporations (20%).
Unlike tax breaks for individuals, provisions for tax cuts for corporations are indefinite.
Proponents of the reform argue that, among other things, lowering corporate tax rates for corporations demotivates companies from applying corporate inversion practices used by US companies to evade federal taxes , which involves creating a new parent company in an offshore zone with subsequent reorganization / re-registration of the parent company to the american branch.
The law also amends the provisions on taxation of US companies operating abroad. Now such companies will not pay tax on profits received outside the United States. At the same time, the rate on income tax, which is returned to the United States in the form of repatriations, will now be 15.5%, and in the form of reinvestments 8%, instead of the previously used 35%.
If you decide, or have already registered in the United States as a company, be extremely careful with the questions of "profits earned outside the United States." A rational step would be to get legal advice, for example, at LAWBOOT Lawyers & Consultants, and to check the scheme of work, which would expose your corporation to the risk of being fined by the IRS (Internal Revenue Department), which will most likely attract the American "Loera" to participate in the judicial process. production against the IRS (whose fee is at least 5,000 USD for the simplest case).
We continue. Reducing the tax on profits earned abroad should encourage corporations to invest more in the US economy, raise employee salaries, create new jobs and generally launch unprecedented economic development.
The law also provides owners of intermediate companies for transit revenue transfer (pass-through companies), such as LLC, partnerships, individual enterprises and S-type corporations, a 20% tax benefit in addition to lowering the highest personal income tax rates, i.e. CEO with high salaries and bonuses.
The first corporations in the USA appeared at the end of the 18th century and almost immediately became key components of the economy of a young state. Despite the fact that corporations existed in Europe already at the beginning of the XIX century, in particular, in Great Britain and the Netherlands, none of the countries belonged to corporate development, as America. The adoption of antitrust laws, on the threshold of the last century, significantly undermined the authority of American corporations, but it was quickly restored by the end of the Second World War and unprecedented corporate hegemony reigned in the United States until the 80s, while the Japanese and, later, in the 90s, German multinational companies did not become the strongest competitors to Americans in world markets.
Corporations have played and are playing a crucial and sometimes very controversial role in the economic, political, and cultural life of the United States, and are an integral part of American identity and the “American dream” .
Free access to capital and intensive industrialization conducted by corporate structures were the locomotives of the American Industrial Revolution in the early nineteenth century. The USA became the leader in the sphere of innovations and the most powerful economy in the world during the “Gilded Century” era (second half of the XIX century).
The corporate and tax laws of the United States have changed many times over the past 200 years to meet the challenges of the times, the requirements of savvy shareholders of companies and the changing competitive environment, especially in the international arena. But in spite of everything, for America America always has the Corporation, not the Individual , at the head , and this is the American social value that determines the role of business, citizen and state in the system of society and is clearly visible in Trump's new tax law.