President-elect Trump plans to ease regulations, specifically within those regulatory burdens on small businesses. Many of these regulations are hidden or woven into corporate income tax laws.

In addition to easing these regulations, Trump also plans to lower the federal corporate income rate to 15 percent, according to his campaigns. This would definitely impact the average American. 

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Tax Foundation Figures

Tax cuts this drastic are truly Reagan-esque, but is 15 percent the right amount?

On August 18, 2016, the Tax Foundation produced the Corporate Income Tax Rates and Tax Cuts around the World, 2016 delivering the following information:

•The United States has the third highest general top marginal corporate income tax rate in the world, at 38.92 percent. Due to the recent reduction in Chad’s corporate tax rate, the U.S. rate is exceeded only by the United Arab Emirates and Puerto Rico.
• The worldwide average top corporate income tax rate, across 188 countries and tax jurisdictions, is 22.5 percent. After weighting by each jurisdiction’s GDP, the average rate is 29.5 percent.
• By region, Europe has the lowest average corporate tax rate, at 18.88 percent (26.22 percent, weighted by GDP). The G7 has the highest simple average, at 30.21 percent.
• Larger, more industrialized countries tend to have higher corporate income tax rates than developing countries.
• The worldwide average corporate tax rate has declined since 2003 from 30 percent to 22.5 percent.
• Every region in the world has seen a decline in its average corporate tax rate in the past thirteen years.

Statutory Rates

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The corporate income tax within this data has several statutory rates. Each of these eight rates begin to kick in as the taxable income begins to rise. Ironically, these rates will rise, fall, and then rise again.

For example, incomes between $100,000 and $335,000 are taxed at 39 percent, and then those making up at $18,333,333 are taxed at 35 percent. The lowest statutory corporate tax rate is only 15 percent, but lowering all corporate income taxes to this rate may mean a shortfall in tax revenue.

On occasion, tax analysis can lump federal and state taxes in with local, so some cities may levy income taxes while others do not. When large discrepancies appear, this could be the reason why.

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Tax Cuts and Exemptions

These exceptions, on the other hand, are what create effective rates. Without exceptions, effective rates would be statutory. These exceptions specifically refer to deductions, exemptions, depreciations, write-offs, and more. Each of these can help individuals lower their tax rates when used properly.

The real goal here may be to simplify federal individual income tax, meaning different sectors of the economy would pay different income taxes and different effective rates. Congress would need to eliminate these exceptions to set a federal income tax. Otherwise, if Congress cuts tax rates but not exceptions, there could be a revenue shortfall.

Donald Trump | Photo Credit Wikimedia CommonsDonald Trump | Photo Credit Wikimedia Commons

All in all, tax simplification is a tax cut, where compliance can be expensive. Exceptions effect various corporation’s decisions and future plans — including whether they expand and add jobs. Congress makes businesses jump through legal hoops, so hopefully Trump will create an environment where corporations see America as an ideal place to conduct business once again. If so, the bottom line could affect middle-class America in a very healthy way. 

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