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Given that significant U.S. federal tax reform is taking place for the first time in over 30 years, this paper examines how changing specific tax provisions may affect the average individual taxpayer as well as the wealthiest 1% of Americans. Three potential federal tax law changes are addressed: repealing the estate tax, reducing the corporate statutory income tax rate, and offering a repatriation holiday for remitting the foreign profits earned by U.S. businesses. These changes are analyzed using publicly available data from U.S. Congressional hearings, the Bureau of Economic Analysis (BEA), and the Internal Revenue Service (IRS). Based on this information, it is estimated that repealing the estate tax would add approximately $20 billion to the federal government’s annual budget deficit due to the wealthiest 1% of Americans no longer being subject to a wealth transfer tax on the value of their estates at time of death. The impact of the estate tax on families with closely-held businesses is also examined in greater detail because of the potentially adverse consequences of imposing a tax on the transfer of nonliquid assets.
When discussing the effects of reducing corporate income tax rates, a commonly expressed idea is that the economy will grow, leading to an increased tax base and the collection of new tax revenue to offset the loss in tax collections from lower rates. However, lowering corporate tax rates does not guarantee immediate economic growth. In addition, when the repatriation provisions of The American Jobs Creation Act of 2004 temporarily provided an incentive for U.S. multinational corporations to remit the profits earned by their foreign subsidiaries, the money brought back was not always spent on creating job growth domestically. Instead, many companies spent the repatriated funds on increased payouts to shareholders including share buyback programs, which benefited the wealthiest 1% of Americans more than the average American. There is a lack of evidence that offering another repatriation holiday would yield significantly different results.
Vanderlende, Trenton, "The Effects of Repealing the Estate Tax and Reducing the Corporate Tax Rate Coupled with a Repatriation Act" (2017). Honors Theses. 2923.
Honors Thesis-Open Access