Corporate taxes in the country have been an issue of discussion for quite a long time. This issue seems to be quite sensitive based on the players involved. United Sates has the highest official corporate tax rate compared to other advanced economies. It is currently at 35%; compare this to countries such as Germany, Canada, U.K, Japan, China, and Singapore, which are 15%, 15%, 23%, 25.5%, 25% and 17% respectively (Bischoff). This aspect forces companies to devote their effort and time in avoiding paying the official rates. The tax code also has many loopholes, which allows companies to end up paying relatively low than it would be expected hence depriving the country valuable revenue. Most of this is done through corporate inversions.
However, there are things that can be done to help solve the problem of revenues that are usually lost through inversions. Among the solutions is abolishing corporate income tax altogether. This would be substituted by an increase in tax burden to the shareholders. This would involve taxing capital gains and dividends at a similar rate as the ordinary income. With this proposal, these gains ought to be taxed every year, and not only when the stocks are sold (Barro). A disadvantage here is that the approach would result in loss of revenue. However, the problem could be fixed by raising income tax rate on the individuals that would benefit from the abolishment. This will definitely be the rich people owning most of these financial assets and non-profit institutions like pension funds and universities.
Repealing the entire corporate income tax and scaling back on personal income are other solutions to this problem. They can be replaced with a broad-based tax that puts more focus on consumption. Consumption tax in this regard might take the form of VAT. The big worry here for some people is that this form of taxation might be too hard for the poor and too easy for the rich. This concern can be addressed by maintaining personal income tax for individuals with high income (Mankiw).
Another solution to this problem is for the country to stop taxing foreign-source income. The United States tries to collect corporate taxes based on where profits for the corporations are earned. However, the multinational aspect of most businesses is making it difficult to ascertain where income is made, and the tax system has resulted in taxing based on the companies’ domicile. This is among the reasons that have prompted various US organizations to locate their headquarters in other countries (Leonhardt). For this reason, corporate tax should focus on where the corporation’s products are consumed rather than its location. The number of inversions that are being done due to this reason are costing numerous jobs to the Americans.
Another possible solution would be cutting the corporate tax rates from 35% to a reasonable amount in order to allow American companies to bring most of their businesses back in the country. There are people that would argue that this would result in reduced tax revenues, making the current federal budget deficit more extensive. However, this would not be the case. With 35%, only a small portion of companies are taxed due to inversions. Introducing a lower rate would mean that more businesses relocate to the USA, and more businesses get taxed within that bracket. The move would also result in increased well-paying jobs, hence increasing personal income taxes (Bischoff).
In conclusion, the current corporate tax law has numerous flaws that ought to be taken care of. To some extent, it is resulting in more diverse problems rather than just loss of revenue. The corporate inversions emanating from the unbearable tax rates are resulting in loss of employment opportunities as most companies prefer putting their establishments in foreign countries. This has led to many people terming these organizations as “corporate deserters”. However, demonizing these organizations is not the right thing to do. An organization’s corporate chief is tasked with the responsibility of ensuring that the organization remains profitable after taxation. Finding ways that will make this happen is part of their job description even if it means executing inversions. Failing to take such an opportunity when it represents itself means that they fail in their fiduciary duty of responsibility towards shareholders. People can only arrange for their taxes to be as low as possible, but they are not bound to choose the pattern that works best for the Treasury (Mankiw). There is no patriotic duty in increasing one’s taxes. When tax inversions are the problem the blame should not be on business leaders who are fulfilling their fiduciary responsibility to shareholders, but it is on the lawmakers who fail in doing the same. The tax code is flawed in many ways, and there is a need to make various changes.
Barro, Josh. “Inverting The Debate Over Corporate Inversions”. Nytimes.Com, 2014, http://www.nytimes.com/2014/08/07/upshot/inverting-the-debate-over-corporate-inversions.html.
Bischoff, Bill. “The Absurdly Simple Way To Fix The Corporate Tax System”. Marketwatch, 2014, http://www.marketwatch.com/story/how-to-reform-our-corporate-tax-system-2014-05-07.
Leonhardt, David. “We Can Fix Corporate Taxes”. Nytimes.Com, 2016, http://www.nytimes.com/2016/10/18/opinion/campaign-stops/we-can-fix-corporate-taxes.html?_r=0.
Mankiw, N. “One Way To Fix The Corporate Tax: Repeal It”. Nytimes.Com, 2014, http://www.nytimes.com/2014/08/24/upshot/one-way-to-fix-the-corporate-tax-repeal-it.html.
Do you need an Original High Quality Academic Custom Essay?