Inégalités de taxes aux Etats-Unis

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TABLE OF CONTENT

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1. 1NTRODUCTION

The authors are third-year business students at the United Business Institutes in Brussels. In the context of the International Business course, it was required to write a research paper. The matter of this report concerns inequalities and corporate taxation in the United States. Analyses of the problems and implications regarding this subject have been conducted. Also, it includes conceivable solutions that might resolve the issues associated with the corporate tax in the United States.

Corporate taxation is a tax mandated on the net income of a company profit. It is hard for most governments to decide on a corporate tax rate that will benefit them without having companies running away from them. High taxation, on the one hand, can have a negative effect on the company’s revenues and their employees. Low taxation, on the other hand, means less budget for the state which needs funding for the country’s infrastructure, and schools. The issues concerning corporate taxation are significant for now and for the future growth of any corporations, institutions, and states. This is the main reason we chose this research subject.

From a business point of view, tax may be perceived as a cost. However, from a state’s perspective, tax is not a cost but a relocation of money from one sector to another. Moreover, from a business accounting prospect, tax is also not a cost. It is considered to be a distribution out of profit, such as a dividend. In fact, corporate tax is calculated after the net profit in a company’s income statement. From an economic standpoint, corporate tax is due to the state in which an organization creates its profits. But not to those governments it can transfer its profits for tax avoidance purposes.

In this research paper, our focus is on the corporate tax in The United States which has fluctuated a lot. Many economies are concerned with corporate tax. Among all developed economies, the US has now become one of the lowest tax rate country.  In fact, in 2017, with a rate of 38.91%, the United states was part of the four country with the highest corporate income tax rate in the industrialized world. Nowadays, the country ranks 56 of the world lowest recorded corporate tax rate, it was not the case all the time. Although its rate fell to 21 percent from 35 percent, the corporate tax rate average from 1909 to 2018 stays at 32.68 percent, according to the internal revenue service. Moreover, they reached the record of the highest rate in 1968 with 52.80 percent, also the lowest rate in 1910 with only 1%. In January 1st, 2018, the president Donald Trump introduced the Tax Cuts and Jobs (TCJA), which reduced the United States federal corporate income tax rate to 21 percent according to the internal revenue service.

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US Corporate Tax Rate (2017 vs 2018) worldwide comparison

Source: Scotiabank Economics, OECD

US Corporate Tax between 1918 to 2018 (in percent)[pic 7]

(Petras and Maxfield, 2018)

Corporate Tax Rate by Country (in percent) [pic 8]

(US-China Investment News | Finance, Tech & Real Estate, 2018)

The information presented in this report are the result of a secondary research conducted by Sarah Kimbuta and Arantxia Mboyo. The topic analysis is organized in three sections. The first section includes a brief history and reforms of corporate taxation, its place in the open economy, as well as its primary objectives. The second section refers to strategies used by multinationals to avoid tax reimbursements. Additionally, it named some tax havens for most companies based in the United States. The last section enumerates some possible solutions for the United States to reduce inequalities associated with corporation tax.

1. US CORPORATE TAXATION  

The US Corporate Tax is a tax collected by the federal and the state government. (=35% federal corporate tax + 4% state corporate tax rate). It is qualified as the tax imposed on the profits of corporations in a meticulous prerogative.

Within the industrialized countries, the United States had the highest corporate tax rate until 2018. The US reached this position not because it has boosted its tax rate but because the rest of the world has progressively reduced its rates over the last decades.

The US Corporate Tax is the third largest source of revenue of the federal tax system. In terms of percentage, it corresponds to 10% of the federal revenue and slightly more than 2% of the Gross Domestic Product.

Statutory Corporate Tax Rate – OECD (2013) ^[1]

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The two main corporate tax systems are classified as territorial and worldwide. Until 2018, the United States had a worldwide system. In this system, the United States maintained the right to seize the tax income of a company irrespective of where the income was generated. For example, if the income of a US corporation was earned in Germany, it would be taxed twice (in Germany and in the US); therefore, the United States gave credits to taxes paid to governments abroad.

Indeed, the US territorial tax system was designed to achieve capital export neutrality meaning that US firms should be indifferent in terms of taxation between investing a dollar in the US and investing a dollar abroad. Hypothetically, firms should invest their marginal dollar in the country where it can most efficiently provide a return on capital with taxes playing an insignificant characteristic.

The main issue associated with the worldwide system is the deferral payment of taxes. Hence, if a corporation earns income abroad and owes some taxes to the United States, it does not have to reimburse them until they repatriate the money in the United States. Consequently, tax reimbursements can be deferred for a long period and herby, potentially make tax savings. Moreover, there is an accounting benefit to foreign earnings if those are “indefinitely” invested, then there is no requirement to record a tax liability for those earnings. However, the firm may owe tax to the US in the future.

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