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The deal with corporate taxes

By Dian Vujovich

crash-215512_150Paying taxes is a subject that seems to usher a response out of everybody–individuals and corporations.

I should probably eliminate the word “corporations” from that opening sentence given that the Supreme Court has ruled corporations are individuals. But that’s something still impossible to swallow. Never mind wrong. But I digress. Taxes are a touchy subject and people seem to have a short memory regarding the levels imposed by Uncle Sam on them previously.

One easy-to-forget stat about U.S. corporate tax rates is that basically from 1950 through 1987, the highest corporate tax rate ranged between 40 and 52 percent, according to Tax Facts from the Tax Policy Center.

Slide over to the individual side of the equation and the highest marginal rate was 70 percent 45 years ago in 1965, according to the Tax Foundation. And that’s coming off a 91 percent rate in 1963 for couples filing jointing with marginal incomes over $400,000.

Clearly, there is no arguing that America’s tax bite today is a fraction of what it has been for corporations– and people—in the past.

But given all the hoopla about America having the second highest corporate tax rate in the world—France is first—and how the current 35 percent rate impedes all sorts of economic stuff for our country, which ain’t necessarily so, talk about lowing the corporate rate has made headway.

President Obama would like to change the tax rate on corporations that are earning massive amounts of money outside of the U.S.and because of various tax strategies and loopholes, are not paying taxes on that money.

And who can argue with him: America could certainly use those tax dollars and a tax dodger is a tax dodger no matter where or how it happens.

I found the clearest explanation of our corporate tax situation in the Feb. 9, 2015 issue of the Princor Financial Services Weekly Market Review. It helped me understand things and perhaps it will do the same for you.

Here it is:

“When an American company conducts business in a foreign country it is required to pay the local tax of the overseas nation. Only when the foreign income is brought back to the U.S. does the American multinational firm pay a U.S. tax, although it is offset by a credit for the amount of the foreign tax already paid. Since the top U.S. corporate rate is 35%, many large American firms have been accumulating massive amount of foreign profits offshore, reluctant to bring the dollars home to face the domestic tax bill (7 firms have each accrued more than $50 billion of such profits). An estimated $2.12 trillion in overall foreign earnings, a total equal to 13% of the size of the U.S. economy, has not been brought back into the U.S. In what is the initial volley regarding 2015 tax reform (both individual and corporate), President Obama proposed on 2/01/15 a 1-time tax of 14% on that $2.12 trillion amount, along with a 19% tax on future foreign profits, slightly more than half the current 35% rate. The president wants to use the tax funds generated to pay for repairs to roads and bridges nationwide (source: White House).”

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