Few people familiar with the US corporate tax system would argue that the system is without problems. Many would argue that the US tax system requires reform. However, most experts do believe that the US corporate tax code keeps us competitive in an international market. Here’s what you need to know about potential corporate tax problems that you may run into.
One of the first complaints that many people have against the US corporate tax code is that it is exceptionally high, much higher than many other countries. The corporate tax code can be as high as a whopping 35%, which really can take a cut out of business.
However, it is very important to keep in mind that most companies don’t actually pay 35% in taxes. In fact, the real taxes that they pay are more similar to other comparable nations.
The US tax system taxes any profits that US corporations make abroad. That means that you may end up having to pay two rounds of taxes domestically and internationally. Territorial systems that don’t tax foreign income may be more competitive than this rather expensive system.
In reality, the US doesn’t end up taxing much more than other nations, even those who are based on territorial systems. The US may actually collect relatively little foreign income tax. Foreign tax credits can shield some types of taxes.
Able to Be Cheated
One big concern about American corporate tax laws is that there are ways to get around them. US corporations are some of the most adept at tax avoidance of any corporations worldwide.
Throughout Europe and elsewhere throughout the world, there are concerns that US corporations are able to evade taxes too easily, making them unfairly successful in the international market. These so-called corporate loopholes enable some US multinational corporations to get much lower tax rates than what is supposed to be standard.
Our tax system prefers some types of investments in the US. Unfortunately, investments that are financed by debt are often some of the most rewarded by the system. This encouragement for debt-based financing rather than investment-based financing can make the entire US economy vulnerable.
Are US Corporate Taxes Competitive?
US multinational corporations have certainly proven themselves competitive in the international market. More US-based corporations are in the Forbes list of most important corporations than most other countries. US corporations are and have been global leaders for some time.
C-corporation tax issues may have more to do with making the US too competitive in a worldwide market than not competitive enough. Many experts argue that the corporate tax system in the United States does not gather as much revenue from giant multinational corporations as it ought to. That means that more money is left in the hands of a few wealthy individuals and their stockholders rather than going back into the economy as taxes.
Value of Tax Exemptions
Many people might jump to the conclusion that corporations, individuals, and everyone else should be taxed similarly. There certainly doesn’t seem like there should be huge exemptions for giant corporations that already made high income.
However, the tax exemption system can be complex, and the ramifications aren’t always clear. The US has tax free options for income coming from pensions, retirement accounts, not-for-profits, some types of savings accounts, and other accounts.
These exemptions can make it possible for everyday people to succeed in the economy and benefit the economy in the long-term. Getting rid of these exemptions could have tremendously negative effects on the economy and on individual happiness in America.
How Should Corporate Tax Law Work?
Many experts agree that, ideally, corporate taxes would tax the rich more heavily than the poor. Income that is concentrated with one individual or corporation is less likely to positively affect the economy, so this is the best place to draw the most taxes from.
Corporate taxes may harm the workers in corporations, but it doesn’t do so as much damage as some other options like labor or payroll taxes. Since most experts agree that reducing income inequality in America is a priority, a taxing system that puts the burden on large corporations is desirable.
How to Avoid Common Corporate Tax Problems
If you want to avoid most of the issues that come with corporate taxes, the secret is to do your research and hire lawyers and accountants who understand the system very well. Most people agree that there are some important and common problems in the corporate tax system.
However, with sufficient research and investment into understanding the taxes that affect your corporation, you are much more likely to avoid most of the problems attached to corporate taxes. You can pay your taxes, do right by your country and government, and thrive as a successful multinational corporation in America.