Tax Reform Failed

Federal Rax reform failed for every sector except America’s largest companies.

If you are a corporation with more than 100 shareholders, you hit the jackpot. Of course you aren’t a corporation. Nor do you own a corporation with more than 100 shareholders. If you own a corporation, it’s probably a flow-through. That means the corporation pays no tax because the profits ‘flow-through’ to the owner and he or she pays the tax personally. Regular corporations pay tax in their own name. They basically have the rights of a person except the can’t be drafted or vote.

Nobody owns Global companies like Ford or Microsoft or Facebook. The Ford family owns a big chunk of Ford, as does Bill Gates of Microsoft, and as  does Mark Zuckerberg of Facebook. But none of them own most or all of the stock. None of them put pressure on the company to pay dividends. Even if they did, it’s not their call to make. If any of them need money, they sell stock. Nobody is putting pressure on Global companies to pay dividends. They actually have no owners. They have investors. There are people who don’t think that’s wise.

It’s this small group of companies that got the lion’s share Tax Reform benefits. A tax cut from 38% to 21%.

  • The owners of privately owned businesses live off the profits.
  • The profits of Global drive stock prices.

That is the crucial difference between the winners and the also-rans in Tax Reform. Global businesses are unlikely to pay dividends. Privately owned businesses take out every available penny.

Federal max tax rates under tax reform:

  • Corporate tax rate: 21%
  • Dividend tax rate: 20%
  • Personal tax rate:  37%

These are your choices.

  • If you’re a corporate tax payer, the most you could pay is 21%.
  • If you’re the owner of a corporate entity the most Federal tax you could pay is 21% corporate tax rate plus the 20% dividend rate for a total of 41%.
  • If you’re the owner of a passthrough entity, the most you could pay is 37%.

Corporations and BIG Business have been synonamous since the corporate form of doing business originated in England in 1600. The corporate form allowed people to invest in large risky business ventures without having to worry about getting sued personally. That was the impetus. It proved quite successful. The first corporation was the Honorable East Indies Company. The company received a Royal Charter from Queen Elizabeth I on 31 December 1600. It ruled India for 258 years and had a standing army of 260,000. It was the richest company ever formed.

The Trump administration said they wanted to cut corporate tax rates to boost the economy. That’s what they did. The rest of us get what’s left over, and there is previous little left over.

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