American corporate tax reforms

American corporate tax reforms Many policymakers and economists believe that the current economy requires radical amendments. However, there is sharp disagreement over why the corporate tax system needs a drastic overhaul and which specific policies should be amended or included in the reforms. Currently, the corporate tax ranges from 15% to 35%, depending on the earnings of a specified corporate entity. Generally, tax reforms are aimed at shrinking long term benefits, discouraging tax sheltering, and minimizing preferences and biases in tax codes. The most attractive proposed tax reform is the broader case, lower rates. The discussion on corporate tax places much emphasis on minimizing the top corporate tax rate and increasing the amount of income subjected to tax in order to offset the revenue loss. The rate can further be decreased if the revenue is not the main objective. It is proposed that reducing the current 35% rate of corporate tax would increase revenue. The joint committee on taxation has proposed that the rate could be reduced to 28% by relying only on removal of corporate tax expenditures. These Estimates are majorly revenue neutral that work through a 10 year budget window. A revenue corporate tax of 29.4 can be achieved if the budgetary estimate is adjusted to include the timing effects and deferrals. The top corporate tax could be further minimized if other changes are executed in addition to eliminating all corporate tax expenditures. For instance, deduction of interest that is not tax expenditure could be eliminated or restricted. Furthermore, additional revenues can be realized by using individual income tax to compensate the reduction of corporate rate. If there is reduction in the corporate tax and tax reforms in non corporate sector, a large volume of business activity will revert to the corporate sector, automatically broadening the tax base (Shaviro, 2004). Allowing foreign corporations to repatriate their profit without being subjected to federal tax liability would offer corporations a strong incentive to shift their income and economic activities from USA to foreign countries. In this case, it is imperative for policy makers to consider enacting amendments that would favor increased domestic activities while at the same time promoting foreign investment. The current nature of the corporate income tax is in hybrid form. It taxes the US based corporation on the global basis while offering a credit for foreign taxes in order to prevent the occurrence of double taxation. If a large corporate tax is imposed on repatriated profits, it may encourage corporation to defer repatriating profit thus affecting the total government revenue. However, the main advantage of not subjecting repatriated cash is that it will encourage US based international organizations to return profits hence a boost to the economy. Furthermore, the repatriated profit will boost domestic investment and the ability of the economy to create employment (Hufbauer & Grieco, 2005). The type of income tax that I would propose to be eliminated is the state income tax. Some states tax corporations highly than others thus forcing organizations to relocate to states that tax relatively less. When state corporate income tax is eliminated, it will provide an equal level ground for organizations to compete. State corporate income tax puts further strain on the income of corporations. Reduced revenues as a result of heavy t...