Twenty-three Democrats and one Republican are running against President Donald Trump in the 2020 election. Trump insists that his tax cuts and regulatory burden reduction policies have boosted the economy, but the forecasts of increasing national debt have caused many to ask whether cutting taxes and regulations best serves the people. Trump’s trade wars and national security threats have compounded concerns.
Voters wonder whether the agenda of reducing the federal budget for government programs and welfare without reducing the crippling national debt should be changed. Carrie Brandon Elliot recently discussed President Ronald Reagan’s “starve the beast” and Grover Norquist’s “drown the government” strategies to shrink government spending through tax cuts.
It’s not clear that any leader can reverse the Trump tax cuts on corporations and passthrough entity owners, which were supported by the view that tax benefits will trickle down, or be given, to poorer Americans. Nana Ama Sarfo recently explored the shrinking middle class and a legislative proposal to save the solvency of Social Security.
Taxes, national debt, and government programs are where the 24 presidential competitors will have to differentiate themselves from Trump. But can they back up their policies and goals with action?
Sen. Bernie Sanders, I-Vt., has proposed the “For the 99.8% Act,” which would tax inherited estates of more than $3.5 million. This is a $7.5 million reduction of the $11 million estate tax exemption created by the Trump cuts. Should families inheriting estates pay taxes on estates of more than $11 million or $3.5 million? One estimate pegs $224,000 as the median net worth of Americans between the ages of 65 and 74.
Sen. Elizabeth Warren, D-Mass., released a proposal for a 7 percent surtax on corporate profits above $100 million called the “Real Corporate Profits Tax.” Its goal would be to prevent companies that report profits to their shareholders in a given year from paying little to no federal income tax and targets the book-tax gap in profits.
Joe Biden wants to eliminate basis step-ups for inheritances to pay for free community college. Others have proposed repealing the Trump cuts to varying degrees.
If the laws were so changed, would corporate integration help individuals and their retirement accounts by reducing the previous combined 57 percent tax rate, pushing it down to corporations, and eliminating all deferral? Would that level the playing field for business entities and create more domestic and foreign tax simplicity and competitiveness?
Sen. Kamala D. Harris, D-Calif., said, “On day one, we’re going to repeal that tax bill that benefited the top 1 percent and corporations.” While her proposal may raise the most revenue, a triple taxation concern has once again risen.
Do payments made under the section 965 one-time transition tax legally entitle corporations to ongoing tax-free dividends from their foreign subsidiaries under section 245A and previously taxed income benefits? Said differently, can Congress take away the section 245A participation exemption and previously taxed income relating to the section 965 transition tax while continuing to collect the repatriation tax installments over a potential eight-year period?
Yes — and the installment election, which was based on liquidity concerns, should not affect this conclusion for accrual or cash method taxpayers for this previously due tax.
The section 965 transition tax focused on the historic earnings of foreign corporations. The deferral that large corporations enjoyed was not available to partnerships, S corporations, or individuals, and was viewed by many as bad tax policy. This is why the subpart F antideferral regime was created in 1962 under President John F. Kennedy.
However, taxpayers easily avoided the taxation of earnings under subpart F, including through the check-the-box regulations. Thus, from a policy standpoint, the transition tax can be viewed as correcting the misguided historic deferral allowed under prior law and the abuses used to move the earnings overseas and avoid antideferral policies found in the tax code since 1962.
Taxing all cross-border subsidiary dividends, as many countries do, would eliminate some of the incredible benefits recently provided to large corporations whose foreign assets are generating income. Ultimately, Congress can change the law, including the exemption applicable to foreign corporate dividends, without giving U.S. companies back their payments due under the transition tax calculated based on their historic offshore earnings.