Doylestown Wealth Management - LPL

165 West Ashland Street Doylestown, PA 18901
P: (267) 864 - 2000 | F: (267) 864 - 2010

December 2016 Budget Commentary

The incoming Republican regime in Washington has proposed a wide-ranging and sometimes inconsistent agenda, but one of their most salient items is the reform of corporate income taxes.  The existing system is disparaged for its complexity as well as its high headline rates—you often see the top take of 35% bandied about even though a vanishingly small number of businesses actually pay it.  Frequently the 35% rate is touted as proof that US tax policy is damaging to “our” corporations, but according to the OECD, US corporate income taxes amount to about 2.3% of our Gross Domestic Product (GDP), which is lower than the 3% average for the world’s developed countries.

Still, corporate tax reform is seen in some circles as a boon for corporate profits and investment—and in others as a giveaway that will cause deficits to balloon.  What many people don’t realize is that individual income tax receipts dwarf corporate income tax receipts, and that any change in the tax code for businesses would need to be sweeping rather than incremental if it is to have a significant effect on the budget or economic growth either way.

One thing is certain, however; corporate income tax receipts have been falling for a couple of years now, despite talk of record profits and an expanding economy.  Companies in the US seem to have been able to manufacture their own tax cut without any help from a new administration.

Over There

One quick comment on the proposal for a one-time “repatriation” tax for corporations which have been holding cash “overseas.”  The plain reality is that this cash is offshore purely in an accounting sense—a better way of putting it might be to call the money “untaxed” rather than “overseas.”  Since the proposed “repatriation” tax rate is 10%–about in line with the aggregate rate on corporate profits—the whole scheme essentially amounts to a deferred payment on the previously untaxed profits.  In fact, one can imagine that the companies who have taken the trouble to shield this income from tax might be reluctant to pay 10% to “bring it home” since that’s why they took the good time and trouble to avoid paying in the first place.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  

 Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Doylestown Wealth Management, Inc. are separate entities from LPL Financial.