Congress is on the cusp of historic pro-growth tax reform that will make America more competitive and encourage investment here at home.
You may be wondering, what’s in the legislation? While we won’t know all the specifics of the final bill until it’s released by lawmakers later this week, what we do know all points to very good news for businesses of all sizes and those who they employ.
Lower rates for businesses
Both the House and Senate versions of the Tax Cuts and Jobs Act significantly lower tax rates for businesses of all sizes and structures.
Most small businesses can look forward to a rate in the mid-20s, down from the high-30s, giving a much-needed shot in the arm to Main Streets across America.
The current U.S. corporate tax rate of 35% makes the U.S. a global outlier and has been a weight around the necks of businesses for years. With an expected rate of 21%, business leaders will now get to make decisions based more on the merits than on the tax consequences, resulting in more investment in new facilities, upgraded tools, and hiring more workers.
Nations have been lowering their corporate tax rates for years.
New international system
Our global competitors have been lowering their tax rates and adjusting their international tax rules for years, as they try to lure companies and investment away from the U.S. Tax reform will make America competitive again by lowering the rates, as discussed above, and moving us to a territorial system. The United States will now be the one luring companies and investment from abroad, and countries are taking note.
The Wall Street Journal reported this week that China is worried that the U.S. will gain a competitive edge from tax reform.
An official involved in Beijing’s deliberations called Washington’s tax plan a “gray rhino,” an obvious danger in China’s economy that shouldn’t be ignored. “We’ll likely have some tough battles in the first quarter,” the official said.
Under the tax plan now going through the U.S. legislative process, America’s corporate levy could drop to about 20% from 35%. Over the next few years, economists say, that could spur manufacturers—whether American or Chinese—to opt to set up plants in the U.S. rather than China, where total tax burdens on companies are among the highest of major economies.
And several European finance ministers have lodged their complaints with the administration.
When foreign countries are worried investment and business activity will soon flow away from them and to the U.S., we know we are on the right track.
The expensing provisions in the tax legislation provide the rocket fuel for economic growth. By allowing for quicker cost recovery through full expensing, businesses will have the confidence they need to take risks and invest in their future, without being penalized by the tax code.
According to the Tax Foundation Taxes and Growth Model, the plan being considered by Congress is a pro-growth tax plan that would increase our Gross Domestic Product, raise wages for American workers, and create more jobs here in America.
So as Tom Donohue said recently, “Let’s get on with it and get it done.”