Originally Posted by Schneed10
OK now that I'm done embarrassing Giantone, let me talk plainly about why bringing cash back from overseas, as it relates to the corporate tax rate, will be so incredibly helpful to our economy. Free education for anybody who's interested.
Until the tax bill went through yesterday, the US Corporate tax rate was 35%. That was way higher than the corporate tax rate in other nations. Ireland is 12.5%. Canada is 15%. China is 25%.
So the way the US Tax rules work is, if you earn profits on goods sold within the USA, that gets taxed at US rates - the 35%. But here's the kicker - how do you know which goods were sold within the USA?
It's based on the company's address of its corporate headquarters. So take Apple. They sell a ton of iPhones in the US, right? So shouldn't they pay a ton of US taxes? One would think. But they created two subsidiary companies called Apple Sales International and Apple Operations Europe. They put almost all of their patents, including iPhones, in the names of those subsidiaries. Thus, any sales for iPhones, regardless of where in the world they occur, are counted as happening in Ireland, not the United States.
Why did they choose Ireland? Because the tax rate is so low.
So not only do they route most of the company's profits through Ireland, but the cash they have in the bank mostly sits in Irish banks, not US banks. Reason? When the cash earns interest from just sitting there, the interest income accrues to Ireland, not the US. That interest income, again, is taxed by Ireland.
Many companies do this. In fact, many companies recently have "inverted". Meaning, they had a headquarters based in the US, but they chose to buy a company headquartered in a low-tax country, meaning they can route all of their earnings through that low-tax country instead of through the US.
Lowering the corporate tax rate removes the incentive to do that. Will you see every company move their cash back home to US headquarters? No, some will still find their existing spots to be more tax friendly. Apple in Ireland is a good example. But many will.
Keep in mind - much of this money is made on sales in the US. The lower tax rate will bring at least a % of it back into a US address, or at least prevent other countries from doing this in the future.
That cash will then be taxed at US rates, and corporations overall will pay more in US taxes, not less.
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