Trump's Tax Reform Philosophy

In pursuit of profit, a part of domestic IT companies seeks to enter the American market (both B2B and B2C), some sell their services as companies from the CIS, or create offshore structures. But part of IT entrepreneurs choose the United States as the place of business registration.

Is it worth doing?

The tax policy of the state determines the social philosophy and generally accepted values ​​of its society. Public debates about the choice of philosophy and approaches to taxation are often fierce, and the opponents taking part in them are irreconcilable. Discussing and choosing the tax policy of the state, society, thus, discusses and chooses what it should be and what role should be assigned in it to the state.

“Only two things are inevitable - death and taxes,” wrote Benjamin Franklin, one of the founding fathers of America, and paying taxes is the most complex, tense and stressful relationship between a citizen and his state, regardless of his political views.

American taxpayers, both conservatives and liberals, traditionally believe that, despite the fact that taxes are an integral part of civil society and the social contract between this society and the state, the US tax system does not cope with pressing tasks and needs fundamental changes . It is incredibly burdensome, inconvenient and too complicated and confusing for the ordinary taxpayer and business.
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If the state’s fiscal policy determines the values ​​and priorities of the nation as a whole, which of these values ​​can we see in Trump’s so-called tax reform recently adopted by the US government?

On December 22, 2017, the President of the United States, Donald Trump, signed the Law “On Tax Reduction and the Creation of New Jobs” (“Tax Cuts and Jobs Act”, TCJA), which:

- reduces the corporate tax rate,
- makes taxation of ordinary Americans more understandable and, in general, is aimed at improving the economic situation in the country.

“Republicans care only for the rich”

Over the past few months, many commentators and experts have expressed their views on this issue. Someone carried the reform to smithereens (mostly Democrats), and someone with all his strength extolled its advantages (mostly Republicans). But while the majority relied on the mantra common in America: "Republicans care only for the rich."

By digging a little deeper, we can see signs of a cornerstone value that Trump's reform is stitching with a red thread, and which is fully consistent with the long tradition of the American center-right elite. Having understood it, we will be able to form for ourselves a clearer picture of this reform.

Trump's tax reform advocates follow the “Laissez-faire” economic doctrine and believe that government intervention in the activities of free market participants should be minimal. What can not be surprising, because Trump is primarily a person from business, and not a professional politician or official. According to supporters of the reform, reducing the tax burden for wealthy citizens, as well as lowering tax rates on real estate and corporate profits should lead to an increase in market activity , while reducing mortgage interest and cutting tax benefits at the state and municipal levels will discourage the state from harmful practices. in pricing processes.

The tax cuts envisaged by this reform significantly limit the state in terms of spending cuts, which are increasingly vigorously and widely discussed in society and the media.

Nevertheless, according to some estimates, the reform may lead to the excess of expenditure over income in the very foreseeable future.

How will this budget deficit be filled?

Republicans argue that budget cuts, especially for all sorts of benefits and social benefits, should solve the problem of budget deficit. In other words, Republicans say that tax reform should serve as an impetus towards reducing government spending and minimizing restrictions for economic actors, that is, business.

The proponents of the reform believe that the fairness of the taxation policy lies in how much tax the taxpayer will contribute to the budget (the less, the better for the taxpayer), and not in what benefits he can use at the expense of the state. At the basis of this, as it seems at first glance, not very important distinction, lies a huge difference in how people with right and left political views see the development of the American economy and society.

The leftists , as a rule, emphasize that all members of society are “in the same boat”, and the state is just a tool for distributing risks. And therefore, their test of the fairness of the tax system is the size of the share of the resources of society, to which each individual citizen or family has access. For those who hold such views, progressive taxation is the obvious and only right choice, especially in an economic environment such as the US, where economic inequality is particularly noticeable and continues to grow.

And vice versa, the position of the right is that all members of society “in the same boat” turned out of their own accord and the state exists to distribute expenses. For people with such a point of view (mostly Republicans for their mass), the important point is that taxpayers pay a fair share of taxes based on the principle of “equal sacrifices” and on the benefits and privileges they receive from the state. This approach limits the distribution of resources among the population and has a less progressive structure of taxation, which we see in the example of Trump's tax reform.

From the very beginning of the reform, the Trump administration focused on a significant reduction in the single tax rate for corporations - from 35% to 21% , to bring it closer to countries like Canada (15%) or Ireland (12.5%) and make the US more attractive to investors. Also, since 2018, Trump's law abolishes the minimum alternative corporate income tax for corporations (20%).

Unlike tax breaks for individuals, provisions for tax cuts for corporations are indefinite.

Proponents of the reform argue that, among other things, lowering corporate tax rates for corporations demotivates companies from applying corporate inversion practices used by US companies to evade federal taxes , which involves creating a new parent company in an offshore zone with subsequent reorganization / re-registration of the parent company to the american branch.

The law also amends the taxation provisions of US companies operating abroad. Now such companies will not pay tax on profits received outside the United States. At the same time, the rate on income tax, which is returned to the US in the form of repatriations, will now be 15.5%, and in the form of reinvestments 8%, instead of the previously used 35%.

If you decide, or have already registered in the United States as a company, be extremely careful with the questions of "profits earned outside the United States." A rational step would be to get legal advice, for example, at LAWBOOT Lawyers & Consultants, and to check the scheme of work, which would expose your corporation to the risk of being fined by the IRS (Internal Revenue Department), which will most likely attract the American "Loire" to participate in the judicial production against the IRS (whose fee is at least 5,000 USD for the simplest case).

We continue. Reducing the tax on profits earned abroad should encourage corporations to invest more in the US economy , raise staff wages, create new jobs, and generally launch unprecedented economic development.

The law also provides owners of intermediate companies for transit revenue transfer (pass-through companies), such as LLC, partnerships, individual enterprises and S-type corporations, a 20% tax benefit in addition to lowering the highest personal income tax rates, i.e. CEO with high salaries and bonuses.

The first corporations in the USA appeared at the end of the 18th century and almost immediately became key components of the economy of a young state. Despite the fact that corporations existed in Europe already at the beginning of the XIX century, in particular, in Great Britain and the Netherlands, none of the countries belonged to corporate development, as America. The adoption of antitrust laws, on the threshold of the last century, significantly undermined the authority of American corporations, but it was quickly restored by the end of World War II and unprecedented corporate hegemony reigned in the United States until the 80s, while the Japanese and later in the 90s, German multinational companies have not become the strongest competitors to Americans in world markets.

Corporations have played and are playing a crucial and sometimes very controversial role in the economic, political and cultural life of the United States, and are an integral part of American identity and the “American dream” .

Free access to capital and the intensive industrialization carried out by corporate structures were the locomotives of the American Industrial Revolution in the early nineteenth century. The United States has become a leader in the field of innovation and the most powerful economy in the world during the “Gilded Century” (the second half of the XIX century).

The corporate and tax laws of the United States have changed many times over the past 200 years to meet the challenges of the times, the requirements of savvy shareholders of companies and the changing competitive environment, especially in the international arena. But in spite of everything, for America , the Corporation, not the Individual , always remains at the forefront , and this is the American social value that determines the role of business, citizen and state in the system of society and is clearly visible in Trump's new tax law.