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Let’s have some truth about corporate tax cuts

In response to the election of Donald Trump, our business lobby, abetted by lazy journalists, have renewed the push for a reduction of the company tax rate so we can remain “competitive” with Donald’s 15% corporate tax rate.

Aside from the fact that it hasn’t happened yet, the US seem to have had no trouble attracting investors with the current business tax rate of 35%.

This is what Forbes has to say about Trump’s proposal.

Businesses are supposed to be in for big tax cuts. Corporations currently pay 35%. President-elect Trump would cut it to 15%. But he would eliminate most business deductions. And there would be simplicity. Instead of depreciation over many years, he would allow up-front deductions. But forget deducting interest on debt, he has suggested. LLCs, partnerships and S corporations would have changes too. Candidate Trump suggested that the owners of these entities should pay the same 15% rate as corporations. Astoundingly, that could mean someone taxed at 39.6% or even 43.4% on flow-through business income now, could see their tax rate slashed to 15%! Of all the proposed tax changes, this one — if it happens — may be the most momentous.

Already, some people are wondering if they can cash in. For example, can wage earners who are paying high income taxes now become independent contractors by forming an entity and conducting their own business? If you pay 39.6% now and could pay 15% by doing that, the incentives are huge. Of course, there are already huge fights and audits over worker status issues. And this change (if it happens) would most likely increase them. It is hard to figure how to handle this one before year-end. Some people will

Trump has proposed personal and business tax reform that would reduce tax revenues by an estimated $4.4 trillion over ten years, or roughly 1.9% of GDP over that period.

And from ZeroHedge:

Ultimately, the outlook for a tax cut depends on how willing marginal Republican lawmakers are to increase the deficit, and/or how willing they are to find offsetting savings elsewhere. Overall, there is a good chance that some type of tax legislation passes next year, but the obstacles to comprehensive tax reform go beyond partisan disputes, so one should expect tax legislation that is adopted in 2017 to be narrower in scope than the campaign proposal.

Another aspect which our business lobby and journalists ignore is that Australia’s franked dividends system means Australian shareholders already enjoy favourable tax conditions on income earned from their investment in companies. The less companies pay in tax, the more individuals will have to pay in income tax on their investment dividends. However, foreign investors do not benefit from franked dividends and would benefit from a lower company tax rate in Australia.

A report by academics at the University of Technology Sydney says more than 40 per cent of Malcolm Turnbull’s $48 billion company tax cut will go to the offshore investors of multinational corporations and foreign tax authorities.

It said that the top 20 companies with the highest tax benefit include BHP Billiton, Rio Tinto, the big four banks, Telstra, Wesfarmers, Woolworths, British American Tobacco and Hancock Prospecting.

These top 20 companies account for $4.1 billion of the tax benefit, which is close to 75 per cent of the total $5.53 billion annual cost, it said.

Treasury predicts a long-term boost to national income of less than 1 per cent (0.8 per cent at best – one private firm says it could be as low as 0.5 per cent).

Officials predict the number of jobs would be boosted by 0.4 per cent above natural growth, at best.

And real after-tax wages would be lifted by a maximum of 1.4 per cent, according to a private estimate provided to Treasury.

“The evidence suggests the magnitude of that effect would be fairly small and only evident over a very long period of time,” Mr Eslake said.

Given our system of dividend imputation, it is questionable at best to say that having a headline corporate tax rate higher than our neighbours makes us uncompetitive. Economic and political stability are big factors for businesses making investment decisions, as is available infrastructure, an educated and skilled workforce, wage rates, other taxes, and the nature of the industry in question.

So before we start rushing to do the bidding of the Business Council of Australia, let’s see what actually transpires in the US and let’s have some actual in depth analysis about the impact of tax cuts on Australia.

Comparing base rates without all the additional information of other taxation laws regarding deductions, depreciation, the interplay with income tax etc, is simplistic, lazy, and deliberately designed to misinform.

 

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21 comments

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  1. Florence nee Fedup

    I am sure there is much more than tax rates that attract a company to Australia.

    There would need to be a highly skilled workforce available for starters, unless they bought their own.

    There would need to be top range communications. Yes fibre to the premises as very least.

    Good transport.

    Stable government would be top list.

    Then there is energy. Wouldn’t want a country who refused to invest in the infrastructure of the future, relying on the crapped out fossil fuel of last century.

  2. Florence nee Fedup

    I wonder if this drive by neoliberals is little more than transferring cost/debt from government where all contribute to their ability to pay onto individuals. Voters pay either way.

  3. Kaye Lee

    If we have a top marginal income tax rate of 47% and a company tax rate of 25% there is going to be a lot more people becoming companies.

  4. FightClubber

    But “companies are people, my friend”

    Mitt Romney

  5. Florence nee Fedup

    As someone said on Sky rate of tax no longer the problem.Problem is getting them to pay any. Rates published are misleading, especially in this country. After discounts and rebates none pay this rate.

    Unlike PAYE were one generally pays. No rebates there,

  6. wam

    Time use gross not net medicare levy on all companies?
    22 continuous months of jobs loss. How long has trunbull been boss??

  7. Kaye Lee

    Almost 600 of the largest companies operating in Australia did not pay income tax in the 2013 to 2014 financial year, ATO figures show.

    These are wealthy companies with high annual incomes and it has led to speculation that Australia is missing out on billions of dollars of tax.

    How much? According to a 2014 report, about $8.4 billion dollars a year. The corporate tax rate is set at 30 per cent, but almost a third of companies are paying an effective tax rate of about 10 per cent, according to the report.

    http://www.abc.net.au/triplej/programs/hack/a-third-of-top-australian-companies-pay-no-tax-ato-figures-show/7038232

    Privately owned companies earning more than $200 million in revenue were captured under the tax transparency measure, which picked up 321 firms.

    The Australian Taxation Office (ATO) said 98 of those firms did not pay tax in 2013–14.

    Among the other largest private companies that paid no tax in 2013–14 was McDonald’s Asia-Pacific Consortium (MAC), the global supplier of the fast food outlet’s beef, which had $478 million in revenue.

    In a statement, MAC said the private Australian company complies with the Australian tax system.

    http://www.abc.net.au/news/2016-03-22/ato-30pc-of-large-private-companies-pay-no-tax/7266454

  8. Kaye Lee

    Fightclubber,….that reminded me….

    “I know the human being and fish can coexist peacefully” – George Bush

    Thank God the risk of a fish uprising has been averted or could you imagine the calls for Donald to Build a Net!

  9. MichaelW

    Just logged onto MAJOR COMPONENTS OF TOTAL TAXATION, all levels of Government. 2014-2015.
    What a nightmare, anyway, not tech savvy enough to cut and paste or provide a link, will just provide a list of the major contributors.

    Income taxes levied on individuals 41.1% ( paye earners at a guess.)
    GST 12.7%.
    Excises and levies 5.5%.
    Taxes on immovable properties(?) 5.6%.
    Taxes on on financial and capital transactions(?) 4.5%
    Income taxes levied on enterprises (a) (b) 16.5%.

    (a) Includes petroleum resource rent taxes.
    (b) Includes income tax paid by superannuation funds on contributions payable on behalf of individuals.

    Where are the multinationals?

  10. Matters Not

    Watched The Drum (on tape) and listened to complete nonsense. The Bromancer, fresh from his latest inability to provide any ‘insight’ re the US elections, and instead of apologising for his ineptitude, was pontificating as to how the investment world would dramatically change if Australia didn’t cut the company tax rate to match Trump’s ‘proposal’. His ‘logic’ was echoed by Cato (what an unfortunate name – she sounded like she was part of the Cato Institute) and some poor unfortunate member of the PM’s advisory committee on Aboriginal something. As always, she was embarrassing. (Can’t understand why the ABC continues to give her a ‘gig’. Maybe the ABC hates Aborigines.) Here’s a clue, they’re many articulate Aborigines out there and most of them aren’t members of the PM’s advisory committee. Indeed, they would most definitely refuse any invitation to be part of same!

    KL made reference to ‘almost 600 of the largest companies operating in Australia’ which did not pay tax’. The accurate figure is 579 – and to reinforce the point – they didn’t pay minimal tax – they paid absolutely no tax. Not a razoo. And yet the government proposes to give them a tax cut. Surely a rationale for more Monty Python episodes.

    BTW, tonight’s host of The Drum was also completely out of her depth as well. There was only one serious contributor and he was reduced to laughter. As was I.

  11. Kaye Lee

    “Where are the multinationals?”

    I believe they are included in enterprises – 16.5%

    Income taxes levied on individuals in 2014-15 represented 41.1% of total taxation revenue, up from 37.4% in 2009-10. In comparison, income taxes levied on enterprises represented 16.5% down from 18.1% in 2009-10.

    This is Michael’s link (right click on address bar to highlight, then left click choosing copy…right click on place you want to paste and then left click choosing paste)

    http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5506.0Main%20Features22014-15?opendocument&tabname=Summary&prodno=5506.0&issue=2014-15&num=&view=

  12. Douglas Pye

    …. Surely it’s time to cease skating around the obvious fact that the current Conservative Government is purely and simply exercising the neocon credo !! …. which is clearly laid out for all to see !! ….. they are NOT in a bubble !….. they are NOT out of touch ! ….. they are NOT lazy !! ….. they are diligently following their clearly designed Script !!

    Rhyme or Reason to the Wind !! They are arrogantly exercising Their Charter ! ….. ( whilst much of Australia knits sox and sniffles !) …

  13. wam

    Your words on both on Aborigines with skill and ability and on the ABC are spot on matters not. However Mundine has got the right word “EVALUATE” Aboriginal programs.
    Review is a political word that requires no truth, can easily hide intent and allows effect based on casual or partial observation. It replace evaluate, an all compassing word, that defined the project with outcomes.
    I was lucky enough to begin an association with many Aborigines, at school, work and socially, from the 50s(when many were forced to deny Aboriginality without losing the racism). Unlucky enough to be involved when gov wasted millions intended for Aboriginal Education. It was awful and ineffective at much moore than balanda paychecks.
    As for the drum, ABC 24 and Aborigines on the ABC, an evaluation would be most interesting. Although a review of viewers may be a quick way to the axe.

  14. Terry2

    I have a very bad feeling about this race to the bottom, first on interest rates which was meant to lead to growth and prosperity but instead has turned our housing market into a monopoly game. Now they want to take each other on by challenging corporate tax rates and saying that lower corporate tax rates will lead to growth and investment ( nobody’s talking trickle down anymore).

    Ireland and Singapore with corporate tax rates of 12.5% and 17% are being held up as examplars of successful economies that have thrived under low corporate tax rates but it is not explained that these countries have attracted corporations to their domiciles as part of a tax avoidance and minimisation regime designed to avoid paying taxes in the countries where they generate their wealth.

    Bermuda has a zero corporate tax rate and there are many corporations domiciled there who do nothing more than launder their global earnings through that island. While were talking about islands, the Cayman’s, well known to our Prime Minister, are also a corporate tax free haven with a zero tax rate for one very simple reason and it has nothing to do with ‘jobs & growth’ and everything to do with tax avoidance.

    Instead of trying to compete with these countries, we should be isolating and boycotting them as they are contributing nothing to real global growth.

    As Kaye Lee has pointed out, we will all end up being corporations so that we can pay less tax but the elephant in the room is saying who is going to pay for the fundamentals of our society : health, education, infrastructure and all the things that go towards making a livable society ?

    Here’s a comparison of global company tax rates :https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html

  15. Harquebus

    Wealth trickles up and not down. The trickle down effect is the wealthy and elite pissing on our backs after pissing in our ears and telling us that it is raining.

    How do we change the political mindset toward favoring humanity and the environment over corporate profit?
    I am one of a few who contacts politicians regularly and have been told by some, even by theAIMN contributors that, I am wasting my time. Perhaps if a lot more would make the effort we could make a difference and even more so if, we collaborated and coordinated. Just a thought.

    Cheers.

  16. Douglas Pye

    … Indeed Harquebus ! … my experience also ….. as individuals we carry little ‘weight’ until such time as we become a cohesive force! … The current Government’s aim to suppress the likes of Get Up (for example) clearly indicates the effectiveness of ‘numbers’ …. representing a significant percentage of Public Opinion ….. the ‘irritant’ factor! …( Aavaz also comes to mind on the World stage).

  17. Harquebus

    Douglas Pye
    Yes and I will also say that your previous comment was also pretty much, “on the money”.
    Cheers.

  18. Marilyn

    Here’s a radical idea. Everybody pays one set tax rate, personal and corporate. No exemptions, no deductions, no loopholes, just one rate for all. Everyone pays a fair share and the more you earn the more you pay but there is no bracket creep and the percentage of income remains the same!

  19. Harquebus

    Marilyn
    I could go along with that but, would also include a payroll tax that taxes heavily those businesses that pay outlandishly exorbitant salaries. If they can afford to pay someone in the order of $millions per year then, they can afford to pay more tax.

  20. Terry2

    Not such a radical idea : a flat rate of income tax, no deductions appeals because of its simplicity and its equity : everyone pays the same percentage and contribute in accordance with their gross income.

    The GST has a similar simplicity but in that case the equity is lost as those on lower incomes pay a substantially higher proportion of their incomes than those on higher incomes.

    I agree with H on payroll tax.

  21. Kaye Lee

    I hadn’t thought of that aspect of payroll tax. My mind had gone along the lines of it being another cost based on employment so a hindrance to such – the more people you employ, the more tax you pay – whereas taxes should be designed to encourage the behaviour we want. But that’s a good point about the obscene salaries of CEO’s.

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