Among the whirlwind of policy changes set forth by newly-elected President Trump is a tumultuous plan to cut corporate tax rates from 35 percent to 15 percent (yes, you read that right). Trump has been talking about a 20 percent corporate tax reduction for some time. However, considering his 100-days in office is nearing, Trump is eager to put this plan to action. To understand the importance of this tax cut, let’s understand what corporate taxes have to do with the US economy and how our rate compares to other economies of our scope.
At a whopping 35 percent rate, the U.S. has the highest corporate tax rate in the world. For every dollar a corporation claims as net income, Uncle Sam takes about ¢35, not including tax deductions and state and local tax. Corporate taxes make up about 9 percent of total U.S. federal revenue, according to a statistic from the Government Accountability Office. China’s corporate tax rate is 25 percent, Ireland’s is 12.5 percent, and our neighbor Canada’s is 15 percent. These rates can have an effect on GDP (Gross Domestic Product) as well. While the U.S. entertained a measly 2.6 percent increase in GDP in 2015, countries like Ireland are enjoying a monstrous 26.3 percent increase in their economy. Obviously we should just decrease the corporate tax rate and watch as the U.S. economy skyrockets, right? Well, it isn’t that simple.
Slashing the corporate tax rate would obviously benefit corporations as they would take in much more profits. These profits, though, wouldn’t necessarily go towards expanding the company. The corporation could very well just use the extra cash in a selfish manner, like distributing cash dividends to shareholders or giving giant bonuses to executives. Small businesses could also be affected considering they wouldn’t receive this tax reduction, as they are not corporations. According to a congressional committee, the corporate tax cut would also cost the government around $2 trillion. This isn’t a pretty sight to Congress seeing as the U.S. is currently $19 trillion in debt.
The government has to take these realities, among many others, into account over the next few days in regard to this controversial decision. Should we cut corporate taxes? Do we think this will give corporations an incentive to move towards more domestic operations, therein increasing American jobs? Or should the corporate rate stay as is? Do we think this will keep the current U.S. debt low? Does big business really deserve to gobble up more profits?