President Trump's Plan To Overhaul Tax Code Includes Cut To Corporate Tax Rate
ROBERT SIEGEL, HOST:
In the coming weeks, we're likely to hear these statements about U.S. businesses and the taxes they pay. First, U.S. businesses face higher tax rates than businesses in most other countries. And second, U.S. businesses really don't pay taxes at those higher tax rates. Well, which is true? Are American companies the victims of excessive taxation, or do U.S. taxes put them at no particular disadvantage?
Well, joining us is Roberton Williams of the Tax Policy Center. Welcome to the program once again.
ROBERTON WILLIAMS: Thank you.
SIEGEL: Let me ask you first. The Trump plan would cut the corporate tax rate from 35 percent to 20 percent. Do U.S. companies today actually pay a 35 percent tax rate?
WILLIAMS: Some do, but most don't. Because of all the various loopholes and preferences built into the corporate tax system, the 35 percent is the marketed rate, but the actual rate on average is more like 25, 26, 27 percent. Some companies pay 35 percent because they don't benefit from those preferences. Some companies pay very, very little. Some even pay negative taxes because of the benefits.
SIEGEL: And where might that, say, 25, 26, 27 percent put U.S. businesses in the world charts of national taxpaying?
WILLIAMS: Probably a little higher than the average but not by much. We're very close to the overall average. Some have higher rates. Some because they've lowered their rates a lot to attract business have somewhat lower rates, such as Ireland. But we're not out of the mainstream in terms of the effective tax rates companies pay.
SIEGEL: The plan would also create a new tax rate of 25 percent for pass-through businesses. First, can you tell us what's an example of a pass-through business? And how big a change would that be to tax them at 25 percent?
WILLIAMS: Pass-throughs in general are smaller companies, partnerships, individual, sole proprietorships who pay taxes on their profits, on their individual tax returns and individual tax rates. Today that means they're paying a top rate of 39.6 percent. If they lower to 25 percent, those people will see large tax savings.
SIEGEL: Now, there's a big principle of business taxation that would change here. The plan would make tax payments territorial, as most other countries' taxes are, corporate taxes are. Can you explain what that means? What's the big change?
WILLIAMS: Right now American corporations pay tax on their income no matter where it's earned - if they earn it in the United States or if they earn it abroad. On the other hand, they don't pay the U.S. tax on monies earned abroad until they bring that money home. So today, American corporations have more than $2 and a half trillion of profits stored overseas. If we go to a territorial system, corporations will be taxed only on the money they make inside the United States. So they could bring the monies that they earned overseas home and invest here without having to pay the higher U.S. taxes.
SIEGEL: We have a president who ran hoping to, he said, drain the swamp. Thinking back to the big tax bills of 30 years ago, there are never more swamp creatures out there than when there's a tax bill up on the Hill. Isn't that right?
WILLIAMS: Every interest that stands to lose a tax preference they currently have will have representatives defending that break. And that means there'll be lots and lots of lobbyists knocking on doors across Capitol Hill, pushing specific interests. That's what makes it so hard. The winners tend to be very large, amorphous groups. The losers tend to be very concentrated, and the losers squeal very loudly.
SIEGEL: That's Roberton Williams of the Tax Policy Center. Thanks for talking with us today.
WILLIAMS: It was my pleasure. Thank you.
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