Business Tax Reform

On February 22, 2012, the Obama Administration released a 25-page “framework for business tax reform” that involves a 28 % top corporate income tax rate. The framework proposed a tax rate of not over 25 % for some domestic manufacturers and a permanent research credit.

According to ABC News, President Obama said in a speech recently “right now, companies get tax breaks for moving jobs and profits overseas. Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it. So let’s change it.”  The framework is meant to put businesses in line with major US trading partners with a “minimum tax on overseas profits.” The framework states “income earned by subsidiaries of US corporations operating abroad must be subject to a minimum rate of tax.”

The cost of lowering the US corporate tax rate should be offset by limiting a variety of business tax provisions.  The framework does not involve a territorial tax proposal. The Administration states “if foreign earnings of US multinational corporations are not taxed at all, these firms would have even greater incentives to locate operations abroad or use accounting mechanisms to shift profits out of the United States. Furthermore, such a system could exacerbate the continuing race to the bottom in international tax rates.”

Under the proposed framework, foreign income deferred in a low-tax jurisdiction would be subject to prompt US taxation up to the minimum tax rate with a foreign tax credit permitted for income taxes on that income paid to the host country. The Obama Administration’s proposed minimum tax on overseas profits would limit the ability of companies to defer US taxes on foreign earnings until the earnings are repatriated.  According to ABC News, President Obama said:

  • a business that wants to outsource jobs shouldn’t get a tax deduction;
  • no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas;
  • an American manufacturer should get a bigger tax cut than businesses who do not make products in the US.

The proposed framework comes at the same time as other business reform news.  In April 2012, the Jumpstart Our Business Startups Act (JOBS Act), a jobs growth bill, owing to a finding by the IPO Task Force that 90% of job creation happens after a company’s IPO, was signed by President Obama.  The JOBS Act relates to private offering rules reforms, to create a healthy equity market.

In late March 2012, Gov. Andrew Cuomo’s office in New York announced a joint statement with Assembly Speaker Sheldon Silver and Senate Majority Leader Dean Skelos that an agreement on a $132.6 billion budget was reached.

Contact an experienced New York tax attorney to help you with business tax problems.