Corporate Tax in America

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<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>Abstract</b></p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>The paper evaluates the impact of corporate taxes on the multinational corporations in the US. Additionally, the paper examines the effect of giving repatriation tax holiday for multinational corporations in the US and the US-based companies. Managers and entrepreneurs globally have over the years complained about heavy taxation by the government of most states which significantly minimizes the profitability of both local and international business organization. In the US, for instance, the topic has been one of the hottest debates that regard the competitive atmosphere of the country&rsquo;s economy to lure multinational corporations. One of the apprehensions that have exploded over the years regarding the issue is that the American international tax system is more complex than any other country in the West.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Researchers have shown improved interest in investigating the impacts of government tax on the formation and allocation of capital, the various patterns of financial support from international companies as well as global competition. Economists and entrepreneurs believe the present 35 percent corporate tax rate to be the greatest challenge facing the American economy competitiveness, the living standard as well as economic growth. However, to attract more investors, some countries have considered a reduction of corporate tax to attract multinational investors over the last few decades leaving America with one of the greatest corporate tax rates. Finally, the paper will provide a conclusion of the research and the recommendations for future actions to make the US capital market profitable for the local and foreign investors.</p>
<p><b>Introduction</b></p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>The 21st century has seen a significant improvement of business activities globally which have resulted in the development of new tax system in most countries to encourage globalization. The internationalization of business activities in the last few decades of the century has witnessed an urgent re-examination of the way governments should obtain tax from these multinational corporations to encourage investments. Managers and entrepreneurs globally have over the years complained about heavy taxation by the government of most states which significantly underestimates the profitability of both local and intercontinental business organization. In the US, for instance, the subject has been one of the hottest debates that question the competitive nature of the country&rsquo;s economy to attract multinational corporations.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Some of the concerns that have erupted over the years regarding the issue are that the American international tax system is more complex than any other country in the West. And more destructive especially after the passing of the 1986 Tax Reform Act that has witnessed a lot of money going away as most multinational corporations are opening businesses where the capital market is attractive (Jennings, Weaver and Mayew, 1021). The topic of multinational business taxing has been a major distress to the government of US as witnessed through the Congress discussions since 1992. Through the discussion, the government is looking for strategies to address the problem by reviewing the tax system of multinational corporations to make the American economy attractive to entrepreneurs looking for investment market of their capital.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Europe also has not been left back by the impending dangers of an economy that pushes away investors. For instance, the growing liberalization of Europe&rsquo;s capital markets has stimulated discussion and debates by the European Commission regarding the coordination of corporate taxation. Policy developments that most countries have supported not only advocates for a better tax system to the multinational corporations but also brings the questions of whether the present international company tax system is feasible. The 21st-century business environment is an atmosphere that emphasizes on the significance of capital-market incorporation as well as international commercial competition for the scarce resources. Consequently, it does not support the current tax system on multinational business organizations which are profit-oriented (Clausing, 905).</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Researchers have shown a renewed interest in investigating the impacts of a tax on the formation and allocation of capital, the various patterns of financial support in international companies as well as global competition. Economists and entrepreneurs have quoted the present 35 percent corporate tax rate to be one of the greatest challenge facing the American economy competitiveness, the living standard as well as economic growth. Some countries have considered a reduction measure of their corporate tax to attract multinational investors over the last few decades leaving America with one of the greatest corporate tax rate amongst the industrialized countries (Jennings, Weaver and Mayew, 1022).</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Japan is one of the countries of the world with high tax rate; however, its government is presently considering reducing the tax rate for corporations by approximately 5 percent, a step that will improve investments. However, the US still holds the highest corporate tax rate when considered under various alternative processes. There is growing demand among investors, citizens as well as stakeholders of the economy over the need to lower the corporate tax rates to enable investors to invest in the country. Therefore, this article will look into how the United States taxes its multinational corporations as well as finding out if the current tax method is suitable or should be restricted. Besides, finding out if reducing the 35 percent tax rate can bring back money to the economy.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>Current Tax System on Global Investment</b></p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>The tax policy and plan significantly influences the level of investment among shareholders, entrepreneurs, as well as managers. The effects of taxes on the cost of capital and revenues to various business activities greatly inspire investment decisions. Tax systems have a great impact on the decision made by investors in a multinational corporation setting through its complex relations between the home and host state tax plan. Besides, the variances among countries regarding the treatment of amount overdue and equity funding.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>The interest and motive of any entrepreneur or manager in the business world are to make profits and expand their business activities in line with their long-term objectives and goals. However, one of the greatest challenges experienced by entrepreneurs running a business within the local or international vicinity is a tax. Tax is one of the nightmares faced by managers and entrepreneurs of global companies are massive levying rate primarily experienced in the America capital market. The United States of America has one of the world&rsquo;s highest tax rates to the multinational corporation making its capital market unattractive to investors who may be interested in mobilizing capital in America.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>The tax process is the responsibility of the federal government. The imposition on the multinational corporation occurs in two ways; which include taxing the shareholders and companies too on the profit gained. The government taxes both the shareholders and the company as a distinct entity. The business pays one type of tax, and the shareholders pay another after receiving dividends or selling their stocks in the stock exchange market. The tax system has received criticism from financial analysists concerning &ldquo;double tax&rdquo; structure citing that it is destroying the economy and reducing profits gained by the shareholders of a company. Despite, the government&rsquo;s effort to lure investors, the system has kept away many entrepreneurs from investing in the US economy. Economists have proposed that using one can help in developing the economy.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>However, some analysts have urged the government to use mark-to-market tax system on the shareholders which will improve a company&rsquo;s profitability and make the country&rsquo;s capital market attractive. The aim of a mark-to-market tax policy is to keep the corporate taxes but repeal the taxes levied on the investors. One of the greatest hurdles this tax system is discouraging possible investors from participating in stock markets. The Comprehensive Business Income Tax (CBIT) played a significant role in a phase to reduce the corporate tax system by eliminating the dividend tax and tax on the profits obtained in a given fiscal period.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Even though picking on taxing the company or its shareholders may appear to be taking cash from one pocket or the other, but the key point is to reduce the corporate taxes. Conversely, economists have revealed that considering either to tax the shareholders or the corporation has prompted the need to develop a new fiscal plan for the improvement. Also, scholars believe that depending on one taxing policy will mitigate some leaks and misrepresentations while aggravating others. Though commentators have seen the need for the government to either tax the shareholders or corporation, some complexities come with either of the plans. For instance, if the Congress revokes the corporate tax and heavily depend on the shareholder tax, the brighter side is that it will eradicate familiar distortions associated with the business tax system. These distortions that may be avoided include the ability of the firm to acquire incentives by earning income abroad and changing of tax residence. The bad news regarding this system is that the shareholder tax remains higher (Schizer, 1853). For instance, the shareholders will have a robust tax incentive to maintain a treasured stock.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Additionally, it will allow for tax exemptions such as foreign shareholders will no longer pay taxes through the corporation taxation system. Consequently, various scholars have criticized the system where the government relies on taxing the shareholders only to be challenging. However, to address the issue associated with shareholder tax the Congress can shift their attention to the other side of the coin, by revoking the tax levied on the shareholders and relying only on the higher corporate tax. Financial analysists have also censured the system despite its capacity to disregard distortions associated with the shareholder tax; it aggravates the distortions from corporate tax. An example of corporate tax distortion that will be worsened is an incentive to shift earnings from the country where the corporation exists. Therefore, considering any of the tax systems requires a thorough and critical evaluation before selection.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>In response, this paper gives a suggestion to the federal government of the US to use both corporate and investors tax system. With the demand for a consistently growing economy, the Congress need to consider and harmonize the rates combined which will add to the same rate if one was applicable. Therefore, a double tax is not the best and appropriate method of taxing corporation because it discourages investment in the US market. However, the government can put extraordinary measures to attract investors into the US market by adopting new corporate taxes such as dropping the taxes as an incentive to the multinational corporations.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Incentives are some of the factors that the federal government of the US can use to attract the interest of oversea investors from the US. One disadvantage of the double tax system adopted by the US is the diversion of capital away from the country&rsquo;s corporate sector and directing it to the noncorporate expenditures. Besides, diverting them to other nations with an attractive capital market for investments (Dyreng and Kevin 1602). Since changing the whole federal corporate taxes can have a drastic effect on the economy of the country as well as making the US market unattractive. Therefore, the government through the relevant authorities should adjust the double tax system in a way that makes the total tax small to encourage foreign investment.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Every government in the world today levies taxes on business established within their territory. Corporate taxes can either deter foreign investment in a state or enhance it depending on the tax system adopted by the government of the mother or host country. Higher corporate taxes have the effect of reducing the profitability of multinational corporations which affect the level of direct or indirect investments. Countries such as India over the last few years have witnessed increasing number of the oversea business investments. The reason behind the strong influx of foreign investors is because of the low corporate taxes on all corporations overseas and in the country.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>India uses a corporate tax system based on three aspects of the market, including gross sales, income, and capital stock. The Indian corporate tax regime allows for the taxing of the corporation only and not touching the income earned by the stakeholders. The tax system has witnessed tremendous growth in investment into businesses because the dividends of the shareholders are not taxed making the capital market rewarding to investors hence diverting away from the US capital market. Furthermore, incentives offered by the government of India are the cause for the ever-growing foreign investment in Indian stock market.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>The United States of America has a tax system often referred to as &ldquo;worldwide&rdquo; strategy of tax that will need every American business to pay approximately 35 percent national corporate tax rate. The tax is levied on the income received by the corporation irrespective of where they earned them, either abroad or domestically. The business tax system has significantly affected investments in the US capital markets as investors divert all their resources away from the country&rsquo;s corporate sector. One way through which this system of corporate tax affect the investment is because the US-based MCNs pay taxes both to the host country and the US federal government a tax of 35 percent. The consequence is a reduction in the business profitability for the most multinational corporation in the US, a problem that has made companies such as Starbucks victims of tax avoidance. Therefore, there is need to put some necessary actions that can make the US capital market attractive even to the local investors. Lowering the federal corporate taxes to approximately 15 percent will have a far-reaching impact on investment into the local capital markets as well as overseas.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Consequently, the current administration in the US should simplify the corporate tax system in a bid to lower the federal tax to about 15 percent or less to encourage active income earning through direct investments. By reducing the tax rate, the government will have to end to any form tax on the active income obtained by foreign business activities of the US-based multinational corporations. Besides, the federal government of America needs to reform its massive tax structure at home through reduction to create a business-friendly atmosphere and attract investors into the capital market.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>The current federal tax reform should be geared towards boosting both local and global business activities of the US-based corporations apart from bringing more investors to the US shores. In line with that, the reforms should focus on the critical issues affecting the whole capital market system and not just majority sound bites. Over the last few years, the value of America&rsquo;s worldwide economy has fallen, which is one of the reasons why doing business in the US has become expensive when compared with other developed countries. Since capital is mobile, higher tax rates than other developed or third world nations divert the investment interests away from the America corporate sector and to a household, foreign nations as well as noncorporate sectors.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>The US citizens are in need of this capital to be more industrious; however, the high taxes imposed by the government on corporations make the market unattractive. As a result, investors seek investment opportunities elsewhere which lead to a decline in real wages in America. For instance, if the price of a product is globally set, there is no room for a corporate tax to land except on the least itinerant factor of production, the American wage earner. Opportunities increase in various parts of the world accelerates the flow of capital outside the US; this is the reason it is important to reform the corporate tax in refining the well-being of American worker.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>A lower federal corporate tax will provide adequate investment benefits to the American economy and households. Besides, it will allow the US to encourage local investment, foreign investment and provide a global competition for capital markets. More money flows into the economy of the US translates to more investment opportunities by corporations. As a result, the local wage earners would have more advanced facilities such as computers, additional studies, and more capital at their disposal which translates into new jobs, higher living standards among other benefits.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>There are ways that the government can employ to repatriate the massive profits gained by the US-based multinational corporations back to the country. The strategy will be providing them temporarily, the very low tax rate on the profits earned. The repatriation tax holiday is recognized globally to increase the corporate investment and create job opportunities to the American residents (Albring et al., 02). Besides, generating a tax windfall to support infrastructural development in the country. A repatriation holiday is a tax waiver that loses income and as a result cannot be payable. The system is meant to encourage multinationals to return overseas profits to the US.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Additionally, it gives the multinationals an enormous tax break while increasing the debits over the long-term period. Despite the support of repatriation tax holiday by most governments, the reality is that the scheme would realize neither objective instead it could worsen a country&rsquo;s financial and economic challenges over a long period. Repatriation tax holiday will lose significant federal income resulting in swelling of budget deficits. Consequently, it will not be able to pay for the infrastructural development in the country. Furthermore, the scheme has been applied by the federal government in 2004 and did not pay the anticipated economic paybacks (Morrow and Robert, 64).</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”><b>Conclusion</b></p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;line-height: 200%”>Corporate tax is one of the ways that most governments of countries of the world obtain taxes from companies, multinational corporation, and local business organizations. However, the level of corporate tax imposed on a corporation can adversely affect the degree of investment in or outside the country. The fiscal policy and plan significantly influence the level of investment among shareholders, entrepreneurs, and managers. The influence of taxes on the cost of capital and revenues to various business activities greatly inspires investment decisions.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Tax systems have a great impact on the decision made by financiers in a multinational corporation atmosphere through its complex associations between the home and host country&rsquo;s tax plan. Countries are working to decrease the corporate tax to attract investment in the countries of origin. The US has remained to be one of the countries with the highest corporate tax among the developed nations such as Japan. However, there is growing demand among investors, citizens as well as stakeholders of the economy over the need to lower the corporate tax rates to enable investors to come into the country.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>The taxing of the multinational corporation occurs in two ways; through taxing the shareholders and companies on the corporate profit. The business pays one type of tax and the shareholders after receiving dividends or selling their stocks in the stock exchange market. The tax scheme has received criticism from scholars about &ldquo;double tax&rdquo; system citing it to be destructive to the economy thus reducing profits gained by the shareholders of a company.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>With the demand for a steadily growing economy, the Congress need to deliberate and harmonize the rates combined which will add to the same rate if one was applicable. Therefore, a double tax system is killing the corporations by discouraging investment in the US capital market. The consequence is reduced profitability for the most multinational corporation a problem that has made companies such as Starbucks victim of tax avoidance.</p>
<p style=”margin-bottom:0in;margin-bottom:.0001pt;text-indent: .5in;line-height:200%”>Therefore, there is need to put actions that can make the US capital market good-looking even to the local investors. Depressing the federal corporate tax to approximately 15 percent will have a drastic improvement in the investment into the local markets as well as overseas. Subsequently, the current administration of the US should work to simplify the corporate tax structure in a bid to lower the federal tax to about 15 percent or less to boost active income earning through direct investments. By reducing the tax rate, the government put an end to any form of tax on the active income achieved by foreign business accomplishments of the US-based multinational corporations.</p>
<p><b>Recommendations</b></p>
<p style=”margin:0in;margin-bottom:.0001pt;text-indent: 0in;line-height:200%”>1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To attract investors both from foreign countries and domestic the government should offer incentives. Incentives are some of the elements that the government can employ to make the US capital market lucrative for those investors seeking for investments grounds. For instance, the Indian government has attracted foreign investment through this plan.</p>
<p style=”margin:0in;margin-bottom:.0001pt;text-indent: 0in;line-height:200%”>2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Allowing repatriation tax holiday to multinational corporations will attract investment. By using the system, the government actively encourage multinationals to return abroad profits to the US market. Also, it gives the multinationals a huge tax break while increasing the debits over a period. However, the government should evaluate the economic impact of repatriation tax holiday concerning its outcomes.</p>
<p style=”margin:0in;margin-bottom:.0001pt;text-indent: 0in;line-height:200%”>3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Another policy that the government can use to attract investors from foreign countries, as well as domestic investors, is through corporate tax reduction. Lowering the federal corporate tax will provide adequate venture benefits to the American economy and households. Moreover, it will allow the US to encourage local and foreign investment as well as providing a global competition for capital markets.</p>
<p style=”margin:0in;margin-bottom:.0001pt;text-indent: 0in;line-height:200%”>4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Abolish the double tax system in the US capital market. Double tax in America has negatively affected the investment feasibility of the US capital market. The federal government should, therefore, adopt a simple corporate tax system that will focus on taxing a corporation and not the dividends earned to let entrepreneurs participate in the capital market.</p>
<p style=”margin:0in;margin-bottom:.0001pt;text-indent: 0in;line-height:200%”>5)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Finally, I recommend the government to undertake further research on the subject of the corporate tax. The future research should focus on other possible options of making the US capital market profitable. Additionally, the study should also focus on other corporate tax system that will be suitable for the US economy.&nbsp;&nbsp;</p>

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