In a world where, like it or not, tax rates are important in guiding wealth managers' decisions, speculation intensifies on what sort of agreements could emerge from Congress and White House in coming days and weeks.

As the US political season rolls on so does speculation on what kind of tax deal ends up being concocted in Capital Hill and the White House.

National Economic Council Director Gary Cohn is reported by Bloomberg and other media as having said yesterday that the Trump administration’s proposed tax on offshore profits would be in the “10 per cent range.” White House advisors and senior congressional figures haven’t specified the exact rates that companies would pay in a one-off way on offshore profits.

With many high net worth and ultra-high net worth business owners making little distinction in certain cases between their personal and corporate affairs, changes to the relatively high US corporate tax rate – up to 40 per cent – is an important wealth management as well as business issue. (The average corporate tax rate the Organisation for Economic Co-Operation and Development collection of industrialized countries is just over 24 per cent, according to a study by KPMG this year.) Such high tax rates have encouraged US corporations such as Starbuck’s, Apple and Amazon to park overseas operations in low-tax centers such as Luxembourg.

With US firms – in contrast to the approach of other nations – US corporate tax rates apply to firms on their global earnings, not just on US earnings. However, such companies can defer taxes on earnings made abroad until they are repatriated. A Bloomberg report noted that this situation has led to US companies amassing an estimated $2.6 trillion outside the country.

To some degree, the pressure to bring back these earnings and levy a one-off tax rate is akin to the tax amnesty programs applied to individual taxpayers by countries around the world, such as Switzerland, the UK, Indonesia and Italy, although these programs have achieved mixed success in reaching hoped-for targets.

Taxes on the Wealthy
Administration officials appear to be at pains to row back from so-called tax cuts for “the rich”, according to a number of media reports at the weekend.

Treasury Secretary Steven Mnuchin and White House budget director Mick Mulvaney were quoted as saying on Sunday news programs that key details of the plan remained undecided and thus it was too early to know how individuals would benefit. But they said the plan is designed, above all, to cut taxes for middle-income earners and businesses (source: Wall Street Journal).

“The objective of the president is that rich people don’t get tax cuts,” Mnuchin was quoted as saying in a television interview. “As the president has said all along, the changes to the income tax system are meant to create middle-income tax cuts and also make corporate and business tax competitive so we can bring back tons and tons of jobs and capital to this country,” he said.

Mulvaney was quoted saying it was impossible to determine how individual earners would fare under the plan because details - such as the dollar amounts that would determine each income-tax bracket - hadn’t been set.

A Republican tax plan worked out between administration figures and GOP leaders in Congress will, reports say, cut from seven to three the number of tax brackets and produce a top tax rate of 35 per cent.

Mnuchin was quoted saying that any reductions in rates for high-income households “are offset with elimination of almost every single type of deduction other than charitable giving and the mortgage interest deduction.”

The proposals can be seen against a background of attempts over recent years by the GOP to push for a flatter, less distortionary tax code that advocates say results, perhaps paradoxically, in the wealthy paying a higher proportion of the total tax burden, an argument sometimes associated with the term “supply-side economics”.