America's soon-to-be 45th president, Donald J. Trump, wants to cut the federal income tax rate U.S. corporations pay from 35% to 15%.
While that appears to be a gift to companies who most Americans don't believe pay their fair share of taxes, it really and truly isn't.
What it would be is a gift to the federal government, and to you, and to me.
Hardly any U.S. corporations, big or small, pay the 35% federal income tax rate in the first place. In fact, the so-called statutory rate isn't a flat 35%, it's a progressive rate that goes from 15% up to 35% depending on how much pre-tax income (before credits) companies make.
The truth is most corporations have a federal effective tax rate (ETR) of about 14%, so making the national rate a flat 15% would be a win-win for the federal government and the average citizen.
How the Tax Code Is Being Used Now
Some people say it's un-American to not pay your fair share of taxes. Others say it's every American's right to pay as little tax as they have to. Everyone says the same thing about companies paying their taxes.
Yet, it's not a matter of what anyone thinks, what matters is the law of the land.
And that means the federal tax code.
The tax code was first written in 1913 as part of the 16th Amendment that created a federal income tax.
The tax code was originally about 400 pages long, but it ballooned to 8,200 pages as World War II wore on. It then exploded from 26,300 pages in 1984 to more than 74,608 pages today.
It's a boondoggle on steroids, but it's the law. However, it's not at all an impediment to people and companies who can afford smart lawyers and accountants capable of parsing the code to their advantage.
To be clear, that's not breaking the law – that's using the law to your benefit.
Like it or not, "working the code" to your personal or corporate benefit to reduce your tax liability is not only legal, it's smart. It has nothing to do with being a good or bad American.
According to a U.S. Government Accountability Office (GAO) report published in March 2016, though the statutory federal corporate income tax rate went from 15% to 35%, from 2006 through 2012, two-thirds of active companies in the United States paid no federal taxes at all. In 2012, of companies that had assets of more than $10 million, 42.3% paid no tax. Of those that made a profit in 2012, 19.5% didn't pay any federal income tax.
The GAO reported that from 2008-2012, large U.S. corporations had an effective tax rate (pre-tax net income minus credits and expense deductions) of just over 14%.
In other words, the so-called statutory top corporate rate of 35% being knocked down to 15% has already happened, at least in ETR terms.
In statutory terms, …
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.