We are moving into yet another “Congressional year” where deadlock must remain the anticipated norm. However, both the President’s budget and the Republican tax proposals contain corporate tax changes designed to drive different parts of the economy. Below (with thanks to Paul Oliveira of KLR for his remarks on this subject at today’s Boston M&A Club) are some highlights:
President Obama’s proposals tend to benefit multi-national corporations overall. In order to reduce the US Federal tax rate, now very high on a comparative basis, the President is proposing a reduction of the C corporation rate from 35% to 28%, with a further drop to 25% for manufacturers. The revenue loss is to be balanced by eliminating certain tax “loop holes” with which we have become quite comfortable, including notably: repeal of LIFO accounting; repeal of immediate tax deductions based on writing down inventory to lower of cost or market.
Obama does suggest a minimum tax on certain foreign earnings, including where onshore-developed IP is transferred to a subsidiary in a low tax jurisdiction to be commercialized.
A bundle of proposed tax relief for privately owned/smaller businesses includes increased expensing of certain equipment purchases, and extension of the zeroing out of capital gains on certain investments in small business stock.
The Republican approach seems to focus more on private companies. It also includes (more modest) enhanced expensing of equipment purchases, as well as simplification of the Code to allow companies with $10,000,000 or less of gross receipts to more easily avail themselves of cash basis accounting, and tweaks to the subchapter S rules which, inter alia, would permit non-resident aliens to invest (only individuals who are either American taxpayers or American residents presently can own subchapter S stock).
The degree to which Congress finds time to address these issues, let alone reach consensus, is (to be charitable) unclear. For the record, the Obama proposals reduce taxes in some areas and attempt to make up the revenue slippage in others; the Republican proposals seemingly all lead to corporate tax reductions only.
[Note: any errors in this partial summary of Paul’s remarks are wholly the fault of this blogger.]