An overhaul of the tax code has been due for some time, as effects of tax loopholes are apparent. Both corporate entities and individuals have been exploiting weaknesses in the tax code to limit their liability. Recently, news about companies using inversions to avoid paying taxes in the U.S. has been making headlines. The government has been blocked from forcing large multinationals to pay taxes in the U.S. when they’ve legally evaded taxes.
When it comes to curbing illegal tax evasion, the IRS implemented the foreign account tax compliance act (FATCA) and successfully brought down offenders. Prohibiting legal tax evasion, on the other hand, is impossible without overhauling the tax code. When the government confronted Apple Inc. regarding the allegations of legally evading taxes, the company suggested that the government should lower the corporate tax rate to improve compliance.
Changing certain rules to stop inversions or to prevent corporations from stacking up their profits overseas may not work without major tax code changes. Loopholes are often exploited because of the complexity and the length of the code.
As far as corporate taxes go, companies tend to seek to avoid the 35% taxes that they are required to pay. Even though this is a legal practice, there is a call to make the U.S. a more attractive place for corporations to invest in and thrive. Lowering the tax rate may help in achieving that.