Trump and Corporate Tax History

 

Trump entered the presidency with a budget deficit of minus $443 billion and a deficit of minus 2.6% as a percent of GDP. Current GDP is $17 trillion. The budget deficit factors as Total Receipts at $3.21 trillion and Outlays of $3.65 trillion. A Total 91% of Receipts are derived from taxes and breaks down as 49% individual taxes, 11% corporate taxes and 31% as payroll taxes.
In 2018, GDP is expected to rise to $17.4 trillion against Total receipts of $3.37 trillion and Outlays of $3.76 trillion. The expected and smaller deficit at minus $3.92 billion represents minus 2.3% as a percentage of GDP.

In 2019, GDP is expected to rise to $17.8 trillion against Total Receipts of $3.47 trillion and Outlays of $3.93 trillion. The expected rise in the deficit at minus $465 billion represents 2.6% as a percentage of GDP.

In 2020’s Presidential election year, GDP is expected to rise again to $18.2 trillion against Receipts of $3.61 trillion, Outlays of $4.05 trillion and a deficit of minus $443 billion. A deficit of minus 2.4% as a percentage of GDP is expected.

The majority of 2017 spending is slated as 36% to Social Security, Unemployment and Labor, 28% to Medicare and Health then 15% to Defense. A total of 28% goes to Health and Human Services, 23% to Social Security, 14% to Treasury and 13% to Defense.

In 2017, $2.56 trillion are Mandatory programs and $1.08 trillion for Discretionary spending. Mandatory programs are already codified by law and government revenues must fund those programs. This means $2.56 trillion is locked and politicians from either party can’t touch or redirect this money. Discretionary money is used by a President to spend at his desire. For 2017, 49% is slated for defense and remainder monies goes to other Federal Government agencies such as Agriculture, Veterans Benefits and Energy and Environment.

In 1970, Discretionary spending was $404 billion against Mandatory programs at $195 billion. In 2017 against Discretionary Spending at $1.08 trillion, mandatory programs total $3.14 trillion. The total 2017 budget is $4.22 trillion against a deficit of minus $443 billion.

The greatest share of government revenues since 1940 derives from Payroll and Individual taxes and both have risen steadily. Corporate taxes decreased substantially since 1980 but dropped overall from the 1940’s. Franklin Roosevelt from 1936 to 1939 was the worst enemy to the Corporate Tax as he charged a Surtax on undistributed Corporate profits from 7% to 27%. The tax rate hovered from 12.5% to 16% on the first 25,000 then taxed higher on increased revenues. The US Federal government traditionally taxes Corporations on taxable income and not on profits.

“Between the first year and last year of the Obummer administration (2009 – 2016), the federal debt rose 46.6% from $11.9T to $17.4T. During the same time period, GDP rose 14.8%.”

“As a percentage of GDP, the debt rose from 82.4% to 105.2%. Debt growth outpaced GDP growth by 31.8 percentage points.”
“On average, the debt increased at a rate of 5.8% per year.” (Office of Management and Budget).

The % of GDP concept began under Hoover in 1930. Hoover was the best friend to the Corporate tax from Teddy Roosevelt to Trump. The two least favored presidents to the Corporate Tax were easily Woodrow Wilson and Franklin Roosevelt. Hoover ran a $7.75 billion Surplus against a positive 0.8% of GDP in 1930.

The present Corporate tax rate is 35% and held from 1993 to present day. The misnomer to current political debates is failure to account to the brackets which began under Franklin Roosevelt in 1936.

From 1909 to 1936, Corporates tax rates hovered from 1% to 13.75%. In 1936, a 15% Corporate tax rate was assessed on taxable incomes of $40,000 or $6,000 owed. In 1938, a corporate tax rate of 19% was charged on $25,000 or $4750.

From 1993 to present day, tax rates and brackets line up as follows and using highest tax rate bracket was factored to actual money owed.

1st $50,000 = 15% or $7500

$50,000 to $75,000 = 25% or $18,750

$75,000 to $100,000 = $34% of $34,000

$100,000 to $335,000 = 39% or $130,650.

$335 to $10 Million = 34% or $3,400, 000

$10 million to $15 Million = 34% or $5, 100,000.

$15 Million to $18,333,333 = 38%.

Here’s ironic. 15 to 18 was not reported on amount owed because the result calculated to the devil’s numbers and/ or mark of the beast. As a christian believer, I’m not writing the numbers.

The rate structure is designed so corporations with $18,333,333 or more face an effective tax rate of 35% on the entire amount of taxable income.

In 1993 under Clinton was added $18,333,333 while $335,000 was the highest bracket under George H.W Bush from 1988 to 1992.

From 1940 to 1978, the top tax bracket was $25,000 to $50,000. From 1942 to 1949 at the $50,000 taxable income bracket, tax rates ranged from 38% to 40% or $19 to $20,000 owed. As a percentage of GDP, 38% to 40% represented negative 29.6%.
The $25,000 bracket survived as the top rate from 1950 to 1974 against tax rates from 52% to 48% and represented a tax charge from $12,000 to $13,000. The $50,000 bracket became the standard yet from 1975 to 1978, the tax rate was 48% or $24,000 owed. From 1979 to 1983, $100,000 became the top tax rate bracket.

For comparison to the current 1993 to 2017 standard, 1979 to 1983 was the top bracket at $100,000 and 46% tax rate to represent $46,000 taxes owed. From 1984 to 1986, $1,405,000 was added as a bracket at a 46% tax rate for a charge owed at $674,400. In 1987, the tax rate was raised to 48% and a charge of $562,000. From 1988 to 1992, $335,000 was the top bracket at a 34% tax rate for a charge of $113,900. The top bracket today is 18,333,333 against the lowest at $50,000 and Corporate tax rates from 15% to 34%.

Exemptions in the tax code began in 1896 when McKinley defeated William Jennings Bryan in a heated contest. Mckinley offered and received a $5,000 exemption and this standard held from 1896 to 1912. Wilson rescinded the exemption to zero from 1913 to 1917. Republicans Harding and Coolidge reinstituted the Exemption to $2,000 from 1918 to 1927 then Hoover upon Presidential win in 1928, raised the Exemption to $3,000.

For context, the top tax rate from 1910 to 1914 was 1% against zero brackets. From 1915 to 1919, Tax rates ranged from 1% to 10% and 10% to 12.50% from 1920 to 1924. From 1909 to 1936, tax rates ranged from 1% to 13.75% against zero brackets. Brackets began under F Roosevelt in 1936 and remains the standard today. The only question and debate is actual Tax rates inside each bracket.

For budget context to Tax rates, Teddy Roosevelt’s 1909 budget receipts were $10.5 billion against $11.5 billion outlays for a $1 billion deficit. In 1901, Roosevelt had a $1.35 billion surplus and by 1908, a deficit of minus $997 million. From 1789 to 1849, the United States had a $1.36 billion surplus. From 1850 to 1900, the United States had a deficit of $18.6 billion.

For comparison to the Reagan tax cuts in the 1980’s as much debate will focus on the ‘Reagan Revolution”, not much has changed since the 1980’s corporate tax except to add higher tax brackets under higher rates. Current tax rates are at their lowest levels since the 1940’s and against six brackets. The higher six bracket category began from 1984 to 1986 and remains the standard today. Reagan’s Revolution began in 1981 under a $6.57 trillion economy and ended in 1988 at $8.38 trillion for a $1.81 trillion gain. How much is attributable to the corporate tax is unknown particularly when tax rates didn’t change under the lower four tax brackets. Reagan began in 1981 with a deficit of minus $165 billion and minus 2.5% of GDP and ended in 1988 with a minus $252 billion deficit against minus 3% of GDP. From 1930 to 2017, + or minus 3% of GDP is a fairly standard historical average although Obummer and Franklin Roosevelt broke the average at minus 8% to 10% of GDP.

From 1979 to 1981:

The 1st $25,000 at 17% factors to $4250.

$25 to $50,000 at 20% factors to $10,000

$50 to $75,000 at 30% factors to $22,500

$75 to $100,000 at 40% factors to $40,000.

1982

The 1st $25,000 at 16% factors to $4,000 and $250 reduction from 1981.

$25 to $5,000 at 19% factors to $9,500 and $500 reduction from 1981.

$50 to $75,000 at 30% factors to $22,500 and remains the same from 1981.

$75 to $100,000 at 40% factors to $40,000 and remains the same from 1981.

1983

The 1st $25,000 at 15% factors to $3,750 and $250 reduction from 1982 and $500 from 1981.

$25 to $50,000 at 18% factors to $9,000 and $500 reduction from 1982 and $1000 from 1981.

$50 to $75,000 at 30% factors to $22,500 and remains the same in 1981 and 1982.

$75 to $100,000 at 40% factors to $40,000 and remains the same from 1981 and 1982.

1984 to 1986

The first $25,000 at 15% factors to $3750 and $250 reduction from 1982, $500 from 1981 and no change from 1983.
$25,000 to $50,000 at 18% factors to $9000 and $500 reduction from 1982, $1000 from 1981 and no change from 1983.
$50 to $75,000 at 30% factors to $22,500 and remains the same from 1981 to 1983.

$75 to $100,000 at 40% factors to $40,000 and remains the same from 1981 to 1983.

$100,000 to $1 million at 51% factors to $510,000 and a new category.

$1,405,000 at 40% factors to $562,000 and a new category.

The commonality from 1981 to 2017 in the first $25,000 bracket was unchanged as the 1st $25,000 at 15% factors to $3750 yet $50,000 at 15% factors to $7500 or $3750 X 2.

The $75,000 category is undefined from 1993 to 2017 as it brackets to either 25% or $18,750 and at 34% factors to $25,500. From 1979 to 1986, the $75,000 bracket factored to either 30% or 40% and represents a tax owed at $22,500 or $30,000. A declaration of small reduction at $75,000 is appropriate.

The $100,000 category from 1993 to 2017 at 34% or 39% factors to either $34,000 or $39,000. From 1979 to 1986, the $100,000 bracket at 40% and 51% factors to either $40,000 or $51,000.

The question for the unchanged or slight reduction status in the lower brackets from 1979 to 2017 is the effect to the small business and Sub Chapter S Corporations. The tax burden remained the same in 38 years from 1979. The line of demarcation is located at $75,000 and $100,000 as those brackets are not only undefined but they determine a higher or lower tax rate.
The tax impact to larger corporations such as GM, IBM and Exxon from 1988 to 2017, for the most part remained consistent from the 35% rate.

The question to not only repatriations but Trump and Mnuchin stated money outside the US accounts for roughly $3 to $5 trillion. For context, Europe’s M3 Money supply stands at 11,654 billion, the Chinese spent 187,841.00 billion in the 2017 budget and Japan spends roughly 830 billion USD per year based on its latest 2017 budget. Money of this magnitude must assume the amounts were invested decades ago and possibly since the higher tax rates in 1987. As American entities, companies are taxed at current rates on what the IRS states is Worldwide income but only when the money is repatriated. American companies deduct or claim a foreign tax credit to offset taxes paid in other nations.

Not only is the Trump proposal to lower the top corporate rate to 15% from 35% but repatriated money will be charged a one time tax of 10% in exchange to exclude the current year’s tax liability. Paul Ryan and the House Republican proposal is to tax accumulated foreign earnings at 8.75% on cash and cash equivalents and 3.8% on other profits. The payments would be spread over an 8 year period. The proposal simply taxes untaxed foreign cash. Sub Chapter S corporations and Pass Throughs would be charged a flat tax.

The Territorial System proposal would allow the foreign nation to tax the American company and exclude taxes owed in the American system. The idea is to exclude the double tax from America and the overseas nation. The question of repatriation would be eliminated as overseas corporate monies are then allowed to float freely across borders. The question then is the competition and bidding wars between nations to institute the lowest tax in order to retain the particular company within its borders.

 

 

Brian Twomey

 

 

 

 

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