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Tag Archive for Lower Corporate Tax Rate

Lowering A Corporation’s Effective Tax Rate With Tax Credits

Michael Korengold GOLD

Corporate Tax Directors are in a unique position to add immense value by exploring ways to lower their corporation’s effective tax rate.  Tax Directors must walk a fine line of getting this important mission accomplished or being too creative in taking unnecessary risks.

Insured Tax Credit Investments provide a practical option to lower a corporation’s effective tax rate with the downside covered by insurance.

How do Tax Credits work?

  • Tax credit programs are government sponsored initiatives designed to encourage taxpayers to help finance solar projects, historic building redevelopment and affordable housing
  • Corporate taxpayer repurposes tax payment reserves into qualifying tax credit projects
  • Taxpayer receives tax credits, project cash flows and an exit payment
  • Tax credit investors generate a return on their tax payments, thus boosting their after-tax income and lowering their effective tax rate
  • Returns are predominantly uncorrelated with project performance – taxpayers earn the tax credits as long as the project maintains regulatory compliance.
  • An insurance policy eliminates the compliance risk and, as such, allows a taxpayer to generate a yield on their tax payments without the risk of losing the tax credits 

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Halting The Elimination Of The Corporate Tax System

It seems obvious that the US needs a complete overhaul of the corporate tax system. As it stands, there is a 35% tax on US corporations, which essentially taxes the workers. Corporations are pretty smart at shifting their income to lower tax rate jurisdictions. This would mean that the corporation would minimize its investments in the US until they reach the same return-on-investment.

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Clearing A Path To A Lower Corporate Tax Rate

Recovery_Line_GraphWe hear a lot of talk from elected officials of both parties about the need to lower the corporate tax rate. There is also talk that it be done in a revenue neutral manner. That might mean different things to both parties. It might mean that there would be some revenue boost from lower rates (Republicans) versus more of a number crunching exercise (Democrats).

In 2011, the Joint Committee on Taxation estimated that it would cost $717 billion over ten years to lower the corporate rate to 28%. Much of the revenue to make this revenue neutral comes from timing changes, such as slower depreciation. I think there will need to be an increase in the capital gains rate and cut back on some generous individual tax preferences (such as the exclusion for employer-provided health coverage and the home mortgage deduction) to help lower both the corporate and individual rates.

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