After months – years? – of carping, the corporate tax haters may finally get their wish: a corporate tax overhaul. Tim Geithner told a Congressional panel on Tuesday that the Obama Administration would soon release a framework for a corporate tax overhaul.
Of course, it’s only a ‘framework’ not a plan, but it’s a start.
I would propose wider brackets. Currently, the lowest bracket, 15% ends at $50,000.00. Make $100,000.00, and you’re paying the highest rate: 39%. That’s right at $100,000.00, you’re in the highest corporate tax bracket. Made $15.0 million? That gets you into the second highest bracket. Sound nuts? See for yourself (source:smallbiz.com):
| Taxable income over | Not over | Tax rate | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â – | Â Â Â Â Â Â Â Â 50,000.00 | 15% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50,000.00 | Â Â Â Â Â Â Â Â 75,000.00 | 25% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 75,000.00 | Â Â Â Â Â Â 100,000.00 | 34% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 100,000.00 | Â Â Â Â Â Â 335,000.00 | 39% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 335,000.00 | Â 10,000,000.00 | 34% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â 10,000,000.00 | Â 15,000,000.00 | 35% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â 15,000,000.00 | Â 18,333,333.00 | 35% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â 18,333,333.00 | 35% |
So what should we do? Spread the brackets to start, and make the jump from 15% to 39% more gradual. This schedule is almost as bad as the estate tax schedule!
Logic dictates that the highest bracket should be at the end of the list, not the middle. Someone at $150,000.00 of income should only pay 15%, as should someone at $500,000.00. It makes no sense that someone who has made $350,000 in profit pays tax on their last dollar earned at a higher rate than someone who has made $5,000,000.00.
What if the brackets looked like this:
| Taxable income over | Not over | Tax rate | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â – | Â Â Â Â Â Â Â Â 100,000.00 | 10% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 100,000.00 | Â Â Â Â Â Â Â Â 250,000.00 | 15% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 250,000.00 | Â Â Â Â Â Â Â Â 500,000.00 | 20% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 500,000.00 | Â Â Â Â Â 1,000,000.00 | 25% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,000,000.00 | Â Â Â Â Â 5,000,000.00 | 30% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â 5,000,000.00 | Â Â Â 25,000,000.00 | 35% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â Â Â 25,000,000.00 | Â 100,000,000.00 | 38% | ||
| Â Â Â Â Â Â Â Â Â Â Â Â 100,000,000.00 | 39% |
This would make much more sense, though high-income companies such as Amazon would likely protest the tax increase. But given the propensity of companies in the $100.0M range to take advantage of NOLs and other loopholes (Dutch sandwich, anyone?) in order to reduce their tax to zero, such arguments are disingenuous.
