The US tax code is absolutely riddled with tax loopholes. Many of these loopholes were designed to act as an incentive, such as tax breaks for hiring former felons, building factories in certain locations, investing in R&D etc etc. Major corporations often pay far lower than the US corporate tax rate precisely because they respond to these tax incentives (and sometimes abuse them, but that's a different story). Does this deal mean that the US will close these loopholes? If so, then 'rich nations' have lost a major tool for creating desired outcomes. If not, then how can this deal prevent other countries just offering whatever loopholes they want that reduce the effective tax rate below the minimum?
> Many of these loopholes were designed to act as an incentive, such as tax breaks for hiring former felons
I wouldn't call all of those incentives loopholes. There's an incentive to hire felons because it's better to have them working secure jobs than having to spend more tax money getting them through the legal system and months/years of jail again. It's an incentive because it's a cheaper solution overall. It's not the same class of an issue as double-Irish.
I'm not sure what the solution for mixing this with the minimum tax is, but if there's a good reason for the incentive, it may even be beneficial to the country to essentially match the missing tax itself. That's assuming the incentives have the real impact they should.
This is a minimum with the corporate tax rate in the US being above that. Therefore, the difference between them minimum and the official value is the incentives margin that the government can use to nudge corporations in the desired direction.
Yes I understand that, but I believe that many corporations today pay even lower than a 15% effective tax rate. I suppose you're saying that these loopholes will be closed up to that minimum?
I think your choice of words here is confusing the issue a little, and would propose “incentive” for a tax break the government would like you to take (employing felons), and “loophole” for tax avoidance the government doesn’t want you to take (eg: sending all your profits to the Cayman Islands).
Given that, if min tax rate is 15% and standard corp tax is 20%, the government is happy for you to get to 15% and would like you to get to there with incentives, but not happy for you to get any lower however you do it. The incentives are generally not powerful enough to get you there anyway
Amazon has enjoyed an effective tax rate of 4.7% over the last 10 years by using tax breaks, tax credits, and depreciation, that have nothing to do with offshoring cash.
Depends what you mean by loop holes. In the US, you can deduct R&D or capital costs like building a factory. That can make your tax bill nearly zero. I wouldn’t call that a loop hope. It’s something out there to incentivize capital spending and job creation. Other countries have the same
Right, so the question is will those 'deductions' still be allowed or not? If so, then get ready for endless deductions from countries that want lower tax rates than 15%.
I would hope they're still allowed, wouldn't you? Incentivizing new factories incentivizes new job creation. The income from these jobs are taxed perpetually. Otherwise, companies will sit on the cash or distribute it to shareholders in the form of dividends, which increases the wealthy shareholder's wealth, with only a one-time 15% going to taxes.
This isn't to say that I don't want businesses taxed, but if a business had 10B in profits, but deducts 5B for capital improvements, then the 5B in remainder can be taxed at 15%
We can't know for sure until the text of the deal is published, but it is the likely scenario. plus, all the accountants and tax lawyers on the world will be unleashed upon this agreement to find ways to avoid paying up. So, this is my hope, but it is not certain.
