A territorial tax system
The tax reform bill also changes the U.S. corporate tax system from a worldwide one to a territorial system. Currently, U.S. corporations have to pay U.S. taxes on their profits earned abroad, and the new system will end this effective double-taxing of foreign profits.
Repatriation of foreign cash and assets
As a result of the worldwide tax system, which makes foreign profits subject to the 35% top corporate tax rate, there is about $2.6 trillion in U.S. corporations' foreign profits held overseas.
In order to bring this money back to the United States, the new tax law sets a one-time repatriation rate of 15.5% on cash and equivalent foreign-held assets and 8% on illiquid assets like equipment, payable over an eight-year period.
This could be big news for companies which have billions parked overseas.
Corporate tax rates
So far, we've discussed individual tax reform, but the most dramatic changes made by the bill are on the corporate side.
For starters, the bill lowers the corporate tax rate to a flat 21% on all profits. This is not only a massive tax cut, but is a major simplification as compared to the 2017 corporate tax structure.
Taxable Income Range Marginal Corporate Tax Rate (2017)
$18,333,333 and above
Data source: IRS.
The global average corporate tax rate is about 25%, so this move is designed to make the U.S. more globally competitive, which should in turn help keep more corporate profits (and jobs) in the United States.
In addition to these changes, the corporate AMT of 20% has been repealed.