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Foreign cooroate income is triple taxed, foreign income taxes, then us repatraition taxes, the state income taxes. Then on what’s left sgarehokders pay dividend

Foreign cooroate income is triple taxed, foreign income taxes, then us repatraition taxes, the state income taxes. Then on what’s left sgarehokders pay dividend and state taxes. That’s sextuple taxed.

gamblor956 9y ago
Most of what you said isn't true. Foreign subsidiary gets taxed by, say, Australia at 25%. It pays dividend to US parent, 0% withholding tax. But the US parent gets an "indirect foreign tax credit" for the taxes its subsidiary pays. (The IFTC is only available to corporations, not individuals, partnerships, or non-corporate LLCs.) It's complicated, but the IFTC can include prior-year foreign taxes paid by Australia Sub, and correspondingly the total IFTC sent up to US Parent is proportional to the total amount of foreign earnings remaining in Australia being dividended up. If that's 100%, then USParent gets a full credit of 25% for the Aussie tax paid by the subsidiary. Note that the US Parent will also pay state taxes on the dividend, and will thus get a SALT deduction for those taxes (but not a credit, so not a dollar-for-dollar reduction). The dividend, paid out to US shareholders, is subject to reduced rates, so it's actually taxes less than normal income. Exact rate depends on your bracket. Recipients will get taxed by their home states as well, but will also get a state tax deduction (at least through 2017...2018 onward depends on the GOP tax bill). The effective rate of tax on foreign earnings from foreign subsidiary to ultimate shareholder thus becomes roughly 50% or less...cheaper than in every other economically relevant nation (meaning 1st and 2nd world countries) after all taxes and credits and deductions are taken into account. The US has the highest "statutory" tax rates but the lowest effective tax rates in the first world for business income.
- opo 9y ago
  >...The US has the highest "statutory" tax rates but the lowest effective tax rates in the first world for business income. Lots of people claim this, but it doesn't appear to be true: >...The U.S. effective corporate tax rate consistently ranks among the five highest of nations considered. The only nation with a higher ETR in each study is Japan, which not by coincidence is the only developed nation with a higher statutory rate than the U.S. Other major nations found to possess a higher ETR than the U.S. in at least one study include France, Italy, and Germany, but no clear patterns emerge; the U.S. outranks this sample more often than not. Significantly, both Italy and Germany have enacted rate cuts since many of these studies were conducted. https://files.taxfoundation.org/legacy/docs/sr195.pdf https://files.taxfoundation.org/legacy/docs/sr195.pdf
- valuearb 9y ago
  All these credits are misdirection, they don’t change anything. foreign profits go through 5 layers of taxes and you yourself admit takes at least 50% in taxes. Even for a poor retiree holding Apple stock. Apple pays 8% income tax to foreign governments. The credit means it still has to pay US taxes on the 92% that’s left. It would be CRAZY to tax money already lost to taxes. Returning foreign profits would have worked out this way before repatriation. Apple pays 8% to foreign governments and repatriates 92% that’s left. Apple pays 9% to state of california. 84% is left. Apple pays 35% to Federal government, 55% is left. Apple pays the 55% as dividends to shareholders. CA middle class taxpayer pays 9% to state of CA. 50% is left. CA middle class taxpayer pays 20% federal dividend rate, 40% is left. You understand now why Apple didn’t repatriate? Taxing investment at 60% is an egregious rate, and it’s bad for society. The best tax rate for investing for society is zero, to encourage investing. Change the corporate rate to zero, and compensate by taxing dividends at ordinary income rates. Besides encouraging more investment (and raising the same or more tax over time) you restore progressivity to our tax system.

gamblor956 9y ago

Most of what you said isn't true. Foreign subsidiary gets taxed by, say, Australia at 25%. It pays dividend to US parent, 0% withholding tax. But the US parent gets an "indirect foreign tax credit" for the taxes its subsidiary pays. (The IFTC is only available to corporations, not individuals, partnerships, or non-corporate LLCs.) It's complicated, but the IFTC can include prior-year foreign taxes paid by Australia Sub, and correspondingly the total IFTC sent up to US Parent is proportional to the total amount of foreign earnings remaining in Australia being dividended up. If that's 100%, then USParent gets a full credit of 25% for the Aussie tax paid by the subsidiary. Note that the US Parent will also pay state taxes on the dividend, and will thus get a SALT deduction for those taxes (but not a credit, so not a dollar-for-dollar reduction). The dividend, paid out to US shareholders, is subject to reduced rates, so it's actually taxes less than normal income. Exact rate depends on your bracket. Recipients will get taxed by their home states as well, but will also get a state tax deduction (at least through 2017...2018 onward depends on the GOP tax bill). The effective rate of tax on foreign earnings from foreign subsidiary to ultimate shareholder thus becomes roughly 50% or less...cheaper than in every other economically relevant nation (meaning 1st and 2nd world countries) after all taxes and credits and deductions are taken into account. The US has the highest "statutory" tax rates but the lowest effective tax rates in the first world for business income.

opo 9y ago
>...The US has the highest "statutory" tax rates but the lowest effective tax rates in the first world for business income. Lots of people claim this, but it doesn't appear to be true: >...The U.S. effective corporate tax rate consistently ranks among the five highest of nations considered. The only nation with a higher ETR in each study is Japan, which not by coincidence is the only developed nation with a higher statutory rate than the U.S. Other major nations found to possess a higher ETR than the U.S. in at least one study include France, Italy, and Germany, but no clear patterns emerge; the U.S. outranks this sample more often than not. Significantly, both Italy and Germany have enacted rate cuts since many of these studies were conducted. https://files.taxfoundation.org/legacy/docs/sr195.pdf https://files.taxfoundation.org/legacy/docs/sr195.pdf
valuearb 9y ago
All these credits are misdirection, they don’t change anything. foreign profits go through 5 layers of taxes and you yourself admit takes at least 50% in taxes. Even for a poor retiree holding Apple stock. Apple pays 8% income tax to foreign governments. The credit means it still has to pay US taxes on the 92% that’s left. It would be CRAZY to tax money already lost to taxes. Returning foreign profits would have worked out this way before repatriation. Apple pays 8% to foreign governments and repatriates 92% that’s left. Apple pays 9% to state of california. 84% is left. Apple pays 35% to Federal government, 55% is left. Apple pays the 55% as dividends to shareholders. CA middle class taxpayer pays 9% to state of CA. 50% is left. CA middle class taxpayer pays 20% federal dividend rate, 40% is left. You understand now why Apple didn’t repatriate? Taxing investment at 60% is an egregious rate, and it’s bad for society. The best tax rate for investing for society is zero, to encourage investing. Change the corporate rate to zero, and compensate by taxing dividends at ordinary income rates. Besides encouraging more investment (and raising the same or more tax over time) you restore progressivity to our tax system.