[socialism_stinX]

A major cut in the corporate tax rate is a great idea. Our current corporate tax system is one of the stupidest things in the history of the world. Our 35% corporate tax rate, one of the highest rates in the world, is guaranteed to drive down capital investment inside the US and push investment and jobs overseas to countries with lower corporate tax rates. Our corporate tax rate needs to be cut to either a permanent rate of 20 to 25% or a temporary rate of 15 to 20% for the next ten years. It would be better to enact a permanent tax rate cut, even if the rate is only reduced to 20-25%, because a permanent tax reduction would generate more big capital spending projects that take 10 to 15 years to pay off completely. It can take two years or more to build a new factory and then another two years to train the workforce and bring the factory up to full production rates. If the tax cut only lasts ten years, then that can leave only six years or less for a new factory to benefit from the tax cut. That might not be enough time to make a large investment pay off. So if we can get some democrats to vote for a tax reduction in the senate, then a permanent rate reduction would be a more effective economic stimulus.

Here’s my two minute course in capital budgeting to explain how a tax rate cut increases capital spending. The basic equation for corporate cash flow is: Free cash flow = EBIT x (1- T) + depreciation – capital expenditures – changes in working capital, where EBIT = earnings before interest and taxes, and T = income tax rate. In the typical capital investment project, almost all of the capital expenditures are in the first few years of the project. Usually when you’re working on a financial analysis for a capital investment, you forecast the incremental increase in operating income (EBIT) generated by business expansion or cost reduction without subtracting out depreciation, and then you don’t have to bother adding back depreciation. So the equation becomes simply: incremental free cash flow = increased EBIT x (1- T) – capital expenditures – changes in working capital. Then you discount the incremental cash flows by the company’s hurdle rate, and then add up the discounted free cash flows for all the years of the project. The sum of all the discounted cash flows is called the Net Present Value (NPV) of the project. If the NPV is positive then the project increases the value of the company sufficiently to be worth the investment. Projects with a positive NPV are generally approved and those with a negative NPV are not approved and have to be improved or else cancelled. The point of all this is that the income tax rate (T) is a key factor in the capital budgeting process and you can see that as T decreases, free cash flow and NPV increase and more projects have a positive NPV. This is why a lower corporate tax rate cranks up capital investment and results in much more investment and resulting job creation in many industries through the economic multiplier effect.

Regarding repatriation of cash flow from foreign subsidiaries, I think the best policy is to tax those profits at a total rate (foreign tax rate + US repatriation rate) equal to no more than the US corporate tax rate. So if we enact a corporate tax rate of 20%, then cash generated by a subsidiary in a foreign tax haven that charges a 10% tax rate would be taxed with a 10% repatriation rate, while companies would pay no repatriation tax on cash generated in a foreign country with a 25% tax rate. With this policy, we would create no incentive to move business operations and jobs overseas to save taxes on repatriated earnings, while also keeping the repatriation taxes at reasonable levels. That encourages repatriation of cash to be used for investments in the US and for stock buybacks.

A substantially lower corporate tax rate would probably result in less corporate tax revenue collected by the federal government, but it would also create a lot of jobs and increase tax revenue from personal income taxes and payroll taxes. Higher employment also cuts government spending on welfare, food stamps, medicaid, and other social programs that benefit unemployed workers. So my intuitive feel for this is that a major corporate tax cut would not increase total government deficits at the federal and state levels, and would create jobs for millions of Americans and greatly improve the lives of millions of our people, without increasing government budget deficits. We need to get a major corporate tax cut done this year and get our economy growing again at rates of at least 3% annual GDP growth in the next four years. Personal tax relief is also a great idea, combined with budget cuts in the federal government.

[9YearLurker]

Great, great move on the part of President Trump.

Kudos to sticking to his campaign promises on this one.

[onyx]

I don’t want to hear the word DEFICIT!

LIBTARDS have no idea about tax rates, budgets, cash flow, return on investments.

[b4its2late]

Do it now!

[FatherofFive]

Corporations do not pay taxes. Consumers pay those taxes, in higher prices for goods.

[HiTech RedNeck]

Grow the golden goose

[CMailBag]

“”But such a plan would be an extremely tough sell to Republican lawmakers who’ve spent the last decade making debts and deficits a central issue, Politico’s Playbook notes. “”

During the last decade the RINOS helped Obama DOUBLE the national debt.

[redgolum]

If corporations are legally treated as individuals, then tax them as such.

[TangoLimaSierra]

In future news...
"Federal judge blocks Trump's tax cut for no particular reason."

[central_va]

Anything Trump wants needs to be first approved by Chuck Schumer as he runs the country now. I mean down to the last penny.

[jimwatx]

So my intuitive feel for this is that a major corporate tax cut would not increase total government deficits

Conservative economists say otherwise, predicting the deficit to increase anywhere fron $2.5 trillion to 12.5 trillion over 10 years should these tax cuts pass. Now if Trump were to talk spending cuts in addition to tax cuts I would be all ears, but he doesn't seem inclined in that direction.

[Hyman Roth]

Until a judge on the Ninth circuit says it is unconstitutional to have tax rates below 35-39%.

[montag813]

But such a plan would be an extremely tough sell to Republican lawmakers who’ve spent the last decade making debts and deficits a central issue

ROTFLMAO!!!

What planet is this reporter living on?

[veracious]

Corporations should be the only legal entities paying income tax. USA citizens legally are not subject to _federal_income_tax_. Persons were made subject to this during WWII under the USConstitution, war powers. As such it ended two years later, or certainly after WWII.

Trump and his team, like DC are never going to return us to our rightful law, the USConstitution. Therefore, they have become lawless and they are violating our right to lawful government.

[Sam Gamgee]

This is his smartest move fiscally I think. It rewards well run companies who actually make money, not companies propped up on corporate subsidies such as the ethanol industry, car industry, ect.

The GOP better get it done. The economy is starting to turn here based on good fiscal policy. If Congress screws it up, we may lose that momentum.

[DoodleDawg]

But such a plan would be an extremely tough sell to Republican lawmakers who’ve spent the last decade making debts and deficits a central issue, Politico’s Playbook notes. Plus, it could put future, permanent, tax cuts at risk.

Republicans only care about deficits when Democrats hold the White House. And Democrats only care about deficits when Republicans hold the White House.

[maxtheripper]

Isn’t there a distinct difference between the stated tax rate and the EFFECTIVE tax rate on corporations after all of the deductions and loopholes are factored in?

From the GAO: “In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability. Larger corporations were more likely to owe tax. Among large corporations (generally those with at least $10 million in assets) less than half—42.3 percent—paid no federal income tax in 2012. Of those large corporations whose financial statements reported a profit, 19.5 percent paid no federal income tax that year”
https://www.gao.gov/products/GAO-16-363

[caddie]

America grew like a weed from 1776 till 1917 or therabouts.

Reason: very very low taxes, and no taxes on corporations or individuals.

Freeloaders kept chiseling until we got the current tax code disaster.

But nobody knows the priceless value of low taxes because teaching history is just about extinct, if not forbidden, in the skools.