Shifting Profits
So far, Pomerleau said, he’s not seeing much evidence of the new guardrails deterring profit shifting. He cited a recent report from the Congressional Budget Office that shows corporate income tax receipts have dropped by 28 percent in the the first nine months of the fiscal year, with about one-third of the decline coming in June -- when the international provisions were already in effect.
“The only conceivable way a corporate rate cut would pay for itself” would be through companies shifting less of their profits overseas, Pomerleau said. “But what you can infer from CBO is that we’re not seeing a significant amount of profits coming back to the U.S.”
The government’s budget deficit is projected to increase to more than $1 trillion in fiscal 2020, in part because of the tax cuts, according to CBO. The shortfall was $665 billion in the year that ended Sept. 30, 2017.
The corporate rate cut is estimated by Congress’s official scorekeeper to cost more than $1.3 trillion over the next decade -- the most expensive provision in the $1.5 trillion tax bill. On the international side, it also slashes the rate on corporate profits stashed overseas. The overhaul temporarily allows for full deductions of capital expenses, and cuts rates for individuals and pass-through businesses like partnerships.
“You get some of the money back through tax cuts, but you don’t get it all,” Morici said. “It won’t be everything you lost by cutting taxes altogether.”
This story provided by Bloomberg News.