Dan O’brien: tax reform in the United States could strike our own revenue collection

  • Dan O’brien: tax reform in the United States could strike our own revenue collection
    Independent.t. E.
    For decades there were no significant changes in the US tax system. Then, in December of last year Congress passed a comprehensive and extensive package, pushed by the most polarizing President in living memory. The law, known as the tax reduction and jobs act (TCJA) – radically revised the U.S. tax system. Mammoth TCJA were the heads of companies, accountants and economists wonder about its consequences in both the United States and abroad.
    https://www.independent.ie/business/irish/dan-obrien-americas-tax-reform-could-deal-a-blow-to-our-own-revenue-gathering-37251705.html
    https://www.independent.ie/business/article36483807.ece/973b0/AUTOCROP/h342/2018-01-13_bus_37665756_I3.JPG

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For decades there were no significant changes in the US tax system. Then, in December of last year Congress passed a comprehensive and extensive package, pushed by the most polarizing President in living memory. The law, known as the tax reduction and jobs act (TCJA) – radically revised the U.S. tax system. Mammoth TCJA were the heads of companies, accountants and economists wonder about its consequences in both the United States and abroad.

The impact is particularly important for this country, given the amount of American investment in the economy, some of which are here because the income tax at 12.5 PC was much lower than in the old Federal rates in the United States, which was amp; 35pc. Before focusing on the cut in the U.S. Federal income tax, 21pc, a few words about the macroeconomic consequences.

The cut in both business tax and personal income tax added further stimulate the American economy, which grows with him, came out of the great recession in late 2009.

What an unusually long time to work without even the shortest or smallest of recession right now is causing some signs of overheating. The economy will eventually dip. If it were to dip in the short term, there would be less gas to the government to provide anti-crisis measures.

The OECD predicts that the state budget deficit in the US will grow at a significant 5.6 PC of GDP this year, last year, with 3.5 PC – deficits of this magnitude are rare for us.

It’s rarer still at this stage of the economic cycle. If something goes wrong, then it would be much less financial possibilities for incentives. This aspect in December last year, the pack gets much less attention than it deserves.

Among the more positive macroeconomic aspects of incentives, from the Irish point of view, at least, that the US Central Bank will continue to raise interest rates. This, in turn, should keep the dollar strong against the Euro, thereby helping to maintain export competitiveness of Ireland with our largest trading partner. But what in terms of tax cuts, which raised the most problems here – the reduction of income tax? A recent working paper* by economists at the IMF has some interesting insights.

First, to reduce narrows the difference between the usually high interest rates and Ireland (and most of the other developed countries of the world). But the contraction is smaller than it may seem at first glance, because it is not only the Treasury in Washington that income taxes. The IMF paper notes that “after subnational taxes – in the range from 0 to 10 PCs at the state level and from 0 to 6.4 PC at the local level are taken into account, we remain in the upper range of the rate applicable in other industrialized countries.”

Of greater concern from an Irish perspective, is the effect on the rate of Corporation tax in other countries. The article describes amp; 35pc Federal rate us as the anchor. Now that it has been significantly reduced, other countries can reduce them to maintain the differential (rate of Corporation tax is the only aspect of politics where globalization was undoubtedly “race to the bottom” effect). Given the intensity with which some of the other major European countries want Ireland to increase its level and make other changes in his routine, it would be politically very difficult for the Irish Government to maintain its appeal by reducing the income tax further, even in the case that the EU, including the UK from next March to reduce them. In the IMF paper describes some details of the new tax, clearing us as “few if any precedents” and as “complex”, but it reduce outward investment from the US is clear. The motivation for the new law to make it happen, even if it affects investments abroad that are not motivated by tax evasion.

One situation which can be cause for concern in Ireland in this regard is base erosion and anti-abuse tax’ (to beat) position. The first part of this provision relating to erosion of the tax base, refers to the practice where companies reduce their tax payments, reducing their profits in countries where taxes are high. The old way to do this is to branch of a multinational Corporation in a low tax jurisdiction charge inflated prices for things like the management fees a subsidiary of a sister in the taxing jurisdiction. This means offset the total profit of the group in the jurisdiction with low taxes. It was difficult to prevent for several reasons, including the difficulties, the tax authorities can establish whether overcharging is really going on.

In order to solve this problem, to beat the will see all the us operations of the company are taxed on a modified income which is paid to foreign persons is not charged, for example, to pay for services, interest and royalties. The tax rate for this modified income will rise from 5 pieces this year to a level that will be familiar to readers of these pages – 12.5 PC – 2025. In the IMF paper correctly notes that the provisions of the new law “, in particular, more aggressive” than those that were agreed as part of the Erosion of the tax base, the OECD-initiative, profit shifting’ (BESP) that the Irish government is headed. These changes can reduce the inflow of foreign direct investment in the United States in Ireland for a long time. In the short term, they can lead to a fall in Corporation tax receipts to the Treasury, even if there are no signs so far that this has happened.

Irish exports of services to USA has increased in recent years. In 2016, the last year they were €15 billion, an amount greater than the cost of all food and drink exports worldwide. If only some of these sales are motivated by profit-shifting and beat all ends to stop them, the amount of income tax due to the Treasury will fall.

It is worth Recalling that those tax revenues in recent years, more than twice what the government has allowed itself to become heavily dependent on them. This decision, which may still be the queue.

http://www.imf.org/en/Publications/WP questions/2018/ 08/07/in-tax-abbreviations-and-Jobs-act-Score-46137

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