The federal income tax restructure, right now, has two different versions: the House version and the Senate version. The two bills must be reconciled by a conference of House-Senate Committee. This activity should be preferably completed prior to Christmas. The two bills will considerably revamp corporate income tax and increase the deficit in the federal budget. Higher income taxpayers will benefit the most. The bills have a number of provisions which are yet to be clearly understood. These poorly understood parts may result in unwelcome consequences.
Repatriations and tax payments
These bills do away with taxes on the repatriated dividends which American companies receive from the foreign affiliates. This helps them to efficiently manage portfolios. Such a legislation will substitute the tax presently imposed on profits which get repatriated with low rate tax imposed on the annual profits. The latter can be attributed to intangible assets of the foreign affiliates. The international taxation and corporate tax are consistent with the proposals obtained from both Republican and Democratic leaders.
This legislation will radically change how both companies and individuals pay their taxes. When it comes to reforming in corporate taxes, these bills will reduce the rate of federal statutory corporate tax to about 20 percent. This percentage is in tandem with major US trading partners. There will be also a reduction of many disincentives which result in companies to invest outside the country and filing income from other countries. Tax residences are now present outside the US.
Revenues and tax burdens
When it comes to revenue and distribution, it was estimated by Joint Committee on Taxation (JCT) through the use of conventional scoring that these bills will reduce the federal tax receipts. The amount will be in the region of $1.5 trillion over a period of five years. Pro-tax advocates have said that these cuts in taxes will finance themselves with an increased revenue from the economic growth. Independent analysts differ. JCT and Tax Policy Center, along with a number of other economic modelers calculate that feedback of revenue generated from the increased output will offset only a small fraction of budgetary expenses.
The tax bills do the work of reshuffling tax burdens within the income groups. This will result in the creation of both winners and losers. However, there will be no organizing principles behind such changes. The two bills almost double standard deduction and increase the child tax credits. Personal exemptions are also eliminated.