Overhauling Corporate Taxation: The Candidates' proposals.
Did you know that the 2016 presidential candidates’ campaign platforms include proposals that could drastically alter corporate taxation schemes? The below proposals—most notably lowering or even eliminating the corporate income tax—would affect both corporations’ bottom line and how the Internal Revenue Service assesses taxes against corporations. Corporations have been taxed by the IRS in a similar way for many years. Currently, corporations must pay an income tax that is a percentage of the amount of taxable income they earn in a year. The percentage varies from 15-35% of taxable income[1], depending on its amount. Taxable income consists of the remaining gross income after taking applicable deductions. Other taxes may apply to corporations as well[2], and some are mentioned below. Many of these long-established taxes could change after the 2016 election.
Notable proposals by the current[3] presidential candidates to change corporate taxation[4] include:
- Lowering or eliminating the corporate income tax (Rubio, Trump, Cruz[5])
- Moving to a territorial tax system; enacting a deemed repatriation of foreign income (Cruz, Rubio, Trump)
- Changes in rules about corporate inversions (Clinton, Sanders)
- Changes in pass-through business income tax rate (Cruz, Rubio, Trump)
- Eliminating the payroll tax (Cruz)
- Raising the employer-side payroll tax rate (Sanders)
- Adding a cap on the deductibility of interest against the corporate income tax (Trump)
- Adding taxes/tax credits to fund paid family leave (Rubio, Sanders)
- Adding tax on high-frequency financial transactions; new business tax credits for profit-sharing and apprenticeships (Clinton).
As shown above, the presidential candidates’ views on long-standing tax structures vary widely, and change could be in the air for corporate taxation and the IRS.
— By Julia Damron, Esq., Barnes Law
Julia is an associate attorney with Barnes Law, licensed to practice law in California.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] The rates vary depending on the corporation’s types of income, and other taxes are imposed as well. See, e.g., “Overview Of The Federal Tax System As In Effect For 2015”, Congressional Joint Committee on Taxation, March 30, 2015, available at https://www.jct.gov/publications.html?func=startdown&id=4763.
[2] Corporations do not qualify for the lower capital gains tax rate like individual taxpayers, and cannot deduct excess capital losses from gross income. Corporations can be subject to additional or separate tax regimes if the company is classified as a personal holding company or a personal service corporation. In addition to the regular tax, a corporation can be liable for the accumulated earnings tax if it retains taxable income in excess of certain threshold limits established by the IRS.
[3] As of the date of this post. Candidates discussed herein include: Hillary Clinton, Ted Cruz, Marco Rubio, Bernie Sanders, Donald Trump.
[4] “Comparing the 2016 Presidential Tax Reform Proposals”, last updated February 24, 2016, http://taxfoundation.org/comparing-2016-presidential-tax-reform-proposals.
[5] Ted Cruz proposes to “[replace] the corporate income tax with a 16% business transfer tax, which applies to all capital income and labor payments”. Id. Cruz’s tax plan, somewhat more extensive than other candidates’, would create many changes in the current tax structure. Pomerleau, Kyle and Schuyler, Michael, “Details and Analysis of Senator Ted Cruz’s Tax Plan”, October 29, 2015, http://taxfoundation.org/article/details-and-analysis-senator-ted-cruz-s-tax-plan.