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U.S. Corporate Tax Reforms May Explode Local Investments

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U.S. Corporate Tax Reforms May Explode Local Investments

Financial accounting stock market graphs analysisThe U.S. has a tax problem. Its corporate tax rates are so high that U.S. corporations were pushed to do corporate inversions. Put simply, a company inversion happens when a company moves its legal address to another country that has a lower tax rate. This has been happening for a long time, but it grabbed a lot of headlines last year – when Burger King did such a deal by moving to Canada. In response, the U.S. Treasury Department issued rules in September of last year, making such moves less financially attractive.
There has been pushback regarding the government’s moves. The pushback is based on such moves. Instead of trying to prevent inversions through regulation and penalties, an increasing number of senators and congressmen are saying that the solution should take the form of tax reform. By lowering its corporate tax rate and determining taxes through a territorial system, the U.S. could retain its corporate base and actually collect more taxes.
It is a statistical fact throughout the U.S. fiscal history: if you lower taxes, you actually collect more tax revenue. This played out, in the most dramatic form, when President Ronald Reagan cut taxes in the mid-1980s. If this proposal pushes through, one key result would be U.S. companies remaining on U.S. soil, or remaining under U.S. tax jurisdiction. There would be less money spent on trying to legally avoid taxes. Moreover, this can unleash a tidal wave of overseas profits coming to U.S. shores.
The crucial element is the territorial tax system. According to Senator Orrin Hatch, the head of the Senate Finance Committee, such a system would lead to more U.S. corporations bringing their overseas profits home. The system would tax companies based only on where they make their profits. They don’t get taxed twice, which the current tax regime allows.

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