Are we at the cusp of a historic structural shift of the same magnitude as the Reaganomics due to the Tax Cuts And Jobs Act passed last year 2017?
Tremendous investment by companies from all over the world being made in America. There has never been anything like it. Now Disney, J.P. Morgan Chase and many others. Massive Regulation Reduction and Tax Cuts are making us a powerhouse again. Long way to go! Jobs, Jobs, Jobs!
— Donald J. Trump (@realDonaldTrump) January 24, 2018
I think we are. Let me explain.
The biggest change in the Tax Code is the change to the Corporate tax for C corps. All publicly listed firms are C corps.
It is not the rate change from 35% to 21% that is the game changer.
Most corporations don’t really pay that top rate due to various tax strategies. All legal.
The bigger change is the change to a territorial tax system.
What does that mean?
It means US Corporations will now pay US taxes only on US Revenue minus US Costs.
So Tax = 21% x (Revenue in US – Cost in US)
Guess where most of the revenue comes from for most US multinationals?
From overseas. It is global economy. US is only 5% of world population. So this is not a surprise. Shouldn’t be. Right?
US based corporations have been shifting jobs overseas to lower costs since wages are lower.
Now there is a huge incentive to bring all those jobs back to the US due this new Tax Code.
Back to the Tax equation. Tax = 21% x (Revenue in US – Cost in US)