United States to rely on economic growth to drive revenue growth for fiscal balance is an illusion

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Yu Yongding: US rely on economic growth to drive revenue growth for fiscal balance is an illusion surging News reporter Chen Jiang Mengying Moonstone Source: News surging tax reform not only stimulate the US economy has little, while the surge in US federal debt growth for the US economy stability and global economic stability is an important threat, CASS member Yu Yongding Pu Shan Foundation, to be held in Shanghai on March 17 represents the second annual meeting。 Yu Yongding think it's time for tax reform to stimulate the US economy will not be much, because the stimulus needed tax reform will have a significant role in a country's economy in case of insufficient effective demand。
Now the US economy is very strong, in which case, you want to have more stimulus is more difficult。
On the other hand, tax reform will cause an increase in the fiscal deficit, "leading to revenue growth alone, fiscal balance through economic growth, which is largely an illusion。
"Said Yu Yongding。 He predicted that the United States some time in the future, like the history has repeatedly demonstrated, deficit and debt will continue to grow。
Now the US national debt to GDP ratio is above 105%, is about to reach a historical high total national debt has exceeded 20 trillion US GDP is a little more than $ 20 trillion。 America's future debt growth worthy of attention。 Trump came to the United States since the debt has grown by more than one trillion US dollars, while fiscal stimulus has not yet implemented。
Source: US financial blog website ZeroHedge report from the US Treasury Department to local time March 16 released by the US national debt for the first time exceeded $ 21 trillion, while Trump's economic policy has not yet officially begun。 Yu Yongding further pointed out that, in the long run, the US federal debt growth is a major threat to US economic stability and global economic stability, since the 1970s has been on the rise, due to the tax cuts and the United States will continue to global intervention US debt will rise。 On capital flows, analysis Yu Yongding said it more difficult to determine the impact。
On the one hand, interest rates and tax reform, the increase in the US current account and capital account surplus, but in the end the US balance of payments situation will improve or worsen, if the current account deficit does not change the case of fully financing the exchange rate, or capital inflows can be converted without changing the exchange rate for the current account deficit, it is difficult to determine。 The following is the speech Record: Yu Yongding: am speaking of you is very exciting that he learned a lot。
This afternoon I mainly want to talk about the issue of tax reform Trump。 I for tax issues, tax reform issue, in fact, a layman, why do I want to say this?Since late last year, early this year, Trump tax reform in the Chinese financial sector, in particular, set off a wave in the financial media。
Various articles are out, a great trend wolf。 Some media title, the US tax reform of China how to do。 Seems to be coming storm, we would not do something China a major event。 So I said, well, I went to see it tax reform。
Results of a look, I think we understand the United States is not comprehensive tax reform。 In people's minds, tax reform is nothing more than tax cuts, personal income tax and corporate income tax。
But the reality is that the US tax reform than this much richer, content is much broader。
That is our understanding of the United States for a comprehensive tax reform is not enough。 On the other hand, a lot of very important tax reform content, we did not get to know, including myself。 I attended a number of forums in the beginning of the year, also talked about the issue of tax reform, but then I found some of my understanding is wrong。
It took almost a month's time, a special look at tax reform article。
More confused, no contact with the United States of articles on tax matters, after a contact with my English is not read, read read all unreasonable, do not know how。
The first concept we must understand the concept of a second investigation, the second and third concepts still do not understand the concept of endless。 After spending some time, think about sort out a clue, so I'm here today to ask for advice everyone, can be considered a shortcoming, also be considered to be some of my own experiences to share with you, you may have heard my speech, I feel that some things I do not have to go myself to read, do not have to charge that the brain。
If we can help you save some time, I think I can be considered harvest this lecture it。
First look at the entire tax structure of the United States, the US tax structure can be divided into three, one federal, one state, one place。 US federal tax structure, I feel very worth to note that the proportion of corporation tax in the United States is the federal tax should be said is relatively low, around 10% in 2015。
Compared with the personal income tax, it is a much lower proportion of。 Learn a background for understanding the US tax reform, especially the reform of corporate taxes, or even what the US economy will have impact on the world economy, I'm afraid helpful。 We should have in mind is a big picture。 US tax reform content is very rich, we generally speaking is the personal income tax, grade seven, in seven grades, there are five levels of rates is down, also made some other changes, while the company tax from 35% down to 21%, down almost 40%。 This is a general, we understand the US tax reform。
In fact the contents of the US tax reform is very rich, I only listed a few of the more important。 Today, I just want to talk about some of the problems associated with the company's income tax reform。 On personal income tax, we are more clear, I am not talking about the。
The reform of the corporate income tax in the end what aspects involved?I personally think that mainly involves three aspects, the first aspect is that we are familiar with, cut corporate income tax dropped from 35% to 21%。 The second is to change the tax system, the tax is to become a global territorial tax system。 There is a system abolished abolished deferred, deferred tax system, which is I think the content is very important corporate tax reform。 The third is to establish a number of new taxes, I used to build new taxes function, role, purpose is not clear, after this month's efforts, I think basically it sorts itself out, but not special clear。
I believe that some of the investment banking sector here in person, I certainly clearer than。
I hope for your advice。 Questions about corporate income tax cut, I will not say here, we are more aware of the problem。 I want to say is, look at the magnitude of the great American corporate income tax from 35% to 21%, down almost 40%。 But in fact, the US corporate income tax in the end how high, it is a question worthy of discussion。
Because it has all sorts of exemptions, all sorts of special provisions, all sorts of tax-free, there are a variety of ways of tax evasion。 So, how much tax reform before the actual level of US corporate income taxes in the end?I do not know, some say that%, and European countries roughly in balance。 I know what is the significance of this?Is that you can see that the US corporate income tax the decrease in the end how much。 If a large impact on the economy may be relatively large。
If not actually so big, so the impact on the economy, probably not as big as we thought。 These issues need further study, I have much to say here。 I mainly want to talk about the second and third, the second is about a global tax system to a territorial system and the abolition of deferred system, these two issues。
Prior to tax reform, the US imposed a global tax system plus deferred tax, the so-called global income tax system is, no matter what is in place to get, whether you are in the United States get, what country or abroad in China owned。
In general, I want to emphasize Generally speaking, this is generally a very rich content。
For simplicity, I've added a "general"。 In general, companies must pay 35% income tax, no matter where you are earning, anyway, have to pay this tax。 Prior to tax reform, including tax reform after the fact, too。
We are talking about companies, overseas companies to pay 35% tax, here mainly refers to the so-called controlled foreign company (CFC), this type of company may postpone its overseas profits back to the US Department of the parent company。 You just do not remit profits back to the US parent company dividends to everyone, you do not have to pay taxes。
Only these companies have such a privilege。
This problem is rather complicated, I say no more。 About what is CFC, it also has a series of related definitions。 Basically, the United States shareholders holding (or possession of assets) and 50% of each shareholder holding more than 10% of overseas subsidiaries。 All in all there is a series of relatively strict definition, in line with this definition is called CFC, once you are CFC, you can defer your profits remitted back to the United States, you do not remit profits back to the US, they do not pay taxes。 This is the so-called deferred tax。 So, before tax reform characteristics of American tax system is global tax plus deferred tax。
What is wrong with this old tax regime?First of all we know, the so-called time value of money, the later taxes will mean lower your effective tax rate。
Only from this point, I'm going to pay taxes as of late, can drag day is the day。
There is also a say, even though I did not remit profits back to the US, but my shareholders can get this money, I'm through loans and other means, so that shareholders get my money, this is not the repatriation of profits to shareholders dividends, but by lending my way, shareholders still get the money, how to spend how to spend, as to when the last pay back the money, that is another matter。 So, this made for deferred corporate America is concerned, there is a great stimulus, as I do not send money back。 Then on the other hand is, according to tax law, CFC companies are not able to easily use such a problem does not repatriate profits, that I did not repatriate the profits stay in the overseas。 You can not just use, you say I go get the money to invest, invest to the United States, this will not work。
But do not rule out that he can use this money in US banks, you did not say repatriate, but in fact the money is already on the Manhattan bank account, and you can take this money to buy US Treasury bills, buy non-affiliated companies stocks, etc.。
Multinational companies because of its strong operational capacity, it is actually this can not repatriate profits for any purpose, any place。 This is the point。
Another point is that, because the multinational companies in overseas store a lot of money and its credit is very high。 So these companies, such as Apple, in the overseas capital market financing, the cost is actually lower than the cost of US Treasuries。 It should be said that multinational corporations have a very big advantage。 All of these sorts of benefits are driven by multinational companies use CFC, the money in overseas。 Not only is there is give the money overseas, not only earned overseas stay abroad, but also to earn in the country to move offshore, pretending that the money is earned abroad。 To give a very simple example, a large company such as the United States, it has a very high research and development capabilities, intellectual property, he put a product sold to a subsidiary of Bermuda, is the cost price or even below cost to sell Bermuda this subsidiary。
This subsidiary of Bermuda in accordance with the market price and then sell products to this European subsidiary there, according to the European subsidiaries and then market price in the European market this product sold。 In this process, the US parent company did not make money, the European subsidiary did not make money, who are making money?This is a subsidiary of Bermuda, it is a very low cost of the product, this product has got the intellectual property, but it sold very high price with the market price, so the profit is very high。 All of this is profit becomes a Bermuda subsidiary generated, and Bermuda in fact do not have any production facilities, have not been doing anything, it is a front company。
This situation not only in Bermuda, such as Ireland and some other small country, Luxembourg, is a very common。 So I want to emphasize, on the one hand US MNCs should remain in its overseas profits overseas, on the other hand but also to multinational companies in the domestic production of domestic profits created through a variety of ways, especially transfer pricing way, move offshore。 What is the biggest problem such a practice is?The biggest problem is the US government lost tax revenue。 Some people say that money out of the United States, in fact, not necessarily。
As I said, he could take this money to buy American stocks to buy US bonds, may be in the bank, so the money is not flowing out of the United States did not return to the United States in the strict sense, you can say back to the United States。
What is the real loss is?US government lost tax revenue。 This is the pre-reform tax system。 Stay abroad how much profit?The divergent views, the tax committee of the US House and Senate are estimated at $ trillion, Goldman Sachs estimated that trillions of dollars, this is each side, it is difficult to count。
But one thing I think is more telling is that in 2008, 43% of the profits of US multinationals, is only 1% of the global population of several small countries produce, like Bermuda, Ireland, Luxembourg, the Netherlands, 43% in Switzerland, it is these small countries, it accounts for only 1% of the global population, but multinational profits, profits generated from the profits of multinational companies here account for the total。
One can imagine that this money is not created in these places are created elsewhere, is to go here。 All in all, stay overseas is a lot of profit。
For such a case, the United States is to reform。 The reforms were mainly two, one is a territorial tax system, that is only a tax on the company's domestic profits, the profits of overseas subsidiaries, in general, coupled with the "general", generally no longer taxed。 However, it has established a new tax, the new tax with a Chinese translation should be I do not know how, there is no uniform translation, invisible global low tax revenues, English is GILTI。 The establishment of a new tax。
Why build this tax, I say wait a minute, and so calculate the taxes tax, I say wait a minute。
This is the first, a territorial tax system。 There is a system of deferred repeal, that is, since 1987, all CFC profits overseas must pay tax on hoarding, here I drew a question mark, whether to be remitted back to the United States?I take a great effort on this issue, confused。 Finally, after a number of investment banks and economists, including the United States, the United Kingdom, as well as China's, to communicate, and finally come to a conclusion, we do not have to repatriate, but must pay tax。
That you're hoarding the past, for example, trillions of dollars of overseas profits, then you have to pay taxes on those profits。
But you must make the repatriation of profits back to the US and then to pay tax?It should be said that there is no clearly defined, anyway, I did not always find clear rules。
So for overseas profits, in fact, there are two separate processes, a tax reform before, from 1986, since 1987, accumulated all these, you have to pay taxes, you can repatriate once, you can also in 8 years repatriation in time。
8 years to repatriate, you want to repatriate the first five years of 8% per year, and then gradually after a few years, I have here a number, a sum of repatriation。
The so-called repatriation, my emphasis here is taxed, you missed the past can not be deferred taxes now, you have to pay taxes。 There is also used a word, that is, as you sink back, in a word you want to escape the tax to make it up。 After the tax reform, already a territorial system, under normal circumstances you earn overseas, you sink back is not taxable, but it is not something you have to earn remitted back to the United States?I had a headache a lot, the final conclusion is, it does not force you to have to repatriate。 I recently heard that in the UK, many companies, including the British government, which has seen it fit in, that we can put the United States, since after the implementation of the new tax system, some persist in overseas remittances of money does not go to the United States, exchange back to England okay?Can we take some preferential policies to attract them to attract money?Yet, this does not seem to be clearly defined, that is, after you earn overseas profits must be remitted back to the United States。 But I'll give you the incentive to make your repatriation, repatriation because you do not pay taxes, you do not have to pay tax in Bermuda, do not pay taxes remitted back to the United States, then you better remitted back to the United States。
This is a powerful incentive。
The new tax system had little impact on the US economy?Long-term do not say, from short terms, company profits may be left in the domestic or overseas profits shifted to tax havens motives and the possibility of greatly weakened。 But will have a lot of overseas funds back, it should be a question mark。
In the past we Everyone says, there will be a large number of reflux, in fact, not necessarily, it will not return to the United States。 Back in the US will do, we are not clear about, this also requires further observation。
Now to my second point, new taxes associated with overseas income, it set up primarily of three new taxes。
The first is that I just said, GILTI, US domestic companies overseas holding company, I just said, CFC, out of the ordinary income in low-tax countries overseas obtained extraordinary income, this income is called invisible low-tax overseas income。 This is the definition of income -。
For such income to be taxed at 50% before tax this income is tax-free, leaving the 50% levy under the new company's US income tax rate, the tax rate is 21%。
That GILTI effective tax rate is actually 50% multiplied by 21%, equal to%, which is a tax on income levied。 The establishment of such a tax, in fact, with the pure principle of territoriality is inconsistent, because the money is not created in the United States, overseas to create, if it is completely belong to rent should not be taxed, but the United States still levy Why wait levy I said, the reason is simple, thanks to more money, and I want to come back at least a little money Bala。
I had this understanding is not quite right, and now I think the understanding of the problem should be more clear。 There is also a tax, overseas invisible income tax, referred to as a FDII, direct investment, plus a me, that FDII, invisible overseas income。
What is invisible overseas income?Beyond the conventional income is US domestic companies by overseas sales of domestic products and related intangible assets acquired services provided。
That there is a big difference with GILTI, GILTI means of CFC, overseas subsidiaries, I refer to this US company that was created in overseas profits, this is the United States so through my ability intangible assets I sell a product, provide a service, such as Disney, it can be considered a large number of IP products and services it sells to China came。
Well, this American company earned foreign income, profits, if it is larger than the usual income, then that is a substantial piece of invisible earnings overseas, this one income should be taxed。 For this income, first of all have a problem deductible rate, percent do not pay taxes, that is, to pay taxes%。
% After tax on this, and then follow the new unified corporate income tax of 21% is so effective tax rate FDII%。
Another tax base erosion alternative minimum tax, I do not know how to turn, erode the tax base tax, or is anti-abuse tax。 This is how it happened?Is a multinational company has many overseas exchanges, exchanges of money, I can give my money to this kind of money paid by subsidiaries, for example, I told subsidiaries to borrow money, then I pay interest to subsidiaries。 This interest in taxes when the time is to calculate the taxable income deduction。
If, after this type of overseas trade more, the more taxable items。
In this case, the tax base will be reduced multinational。
Therefore, the establishment of a new tax is to prevent, in order to reduce a tax business in this cross-border financial transactions, to the detriment of the US tax base, as a kind of compensation。
Its design, with its collection methods are not the same in front of these two taxes。 The impact of tax reform on economic growth in the US Here to talk about。 I would like to appeal to everyone, of course, not everyone, I hope some of our organizations certain government departments to extract considerable human and material resources, the US tax code in-depth study。 US tax law is said to have more than seventy thousand pages, which reads in English with other English we read is not the same, anyway, I read a very, very headache。 I do not know if there is another wave of people studying Chinese American tax law, if not this is a terrible thing。
Because China is now the world's second economy, we go out, if we do not have a very deep understanding of the US tax code, we may have to suffer a great deal。
The reason I say this view is because, in the course of my contacts, look into the articles you write, very few people for the United States, what I just said these issues, in-depth analysis。 I understand very superficial, but I think people may be more superficial than I also understand that this is not enough, so I am here to appeal to you, we want some research institutions, government departments, to study some US tax code completely thorough bottom。
Finally, I talk about the impact of tax reform on economic growth in the United States。
We have emphasized certain tax reform on the United States economy is to provide a more powerful driving force of growth, but in the end this much power, US officials, the US president's economic adviser would have said that it would add two three percentage points, scary, how could?US economic growth rate is 2.5 per cent a few general, up to 3%, add two to three percentage points, too exaggerated。
Most research institutions believe that the impact on economic growth is relatively small, it is between% and%。
For example, the current growth rate is 2%, due to the tax reform will increase a little, become%, is such a concept。 why is it like this?Because of this tax reform is to stimulate in the case of a country's economy is lack of effective demand, there is a lot of stimulus。
Now the US economic situation is quite good, very strong, so in this case, you want to have more stimulus is more difficult。
This tax reform after another, you must be to cause an increase in the fiscal deficit, because you did not measure the corresponding tax cuts。 You alone can lead to growth in revenue through economic growth, fiscal balances, which is largely an illusion。
I think the United States for some time, as repeatedly proven in history, its budget deficit will continue to grow, its debt will continue to grow。 Now the US national debt to GDP ratio is above 105%, the US debt to GDP ratio up to 1946, 106%, and this number is a number at the end of 2007。 I checked a few days before the US debt clock, it is actually the total US national debt has exceeded twenty-three trillion US gross domestic product that is a little more than twenty trillion。 So the future growth of the US debt, is worthy of our attention。 China is the largest creditor of the United States, for such a situation, we should be very well prepared。
So, one, economic growth must be stimulated, it may be evident in some short-term, long-term less obvious。 As the US current economic situation, in general, I think it will not be too obvious。 Tax cuts should be an increase in the US budget deficit。
If I think it has little economic stimulus, then the logical result of that is, increase the role should be relatively large。 In the long run, the US federal debt should be said is a major threat to US economic stability and global economic stability, which is the history of the US federal debt as a percentage of GDP ratio is the highest peak in history。 The seventies to now has been rising, the future will rise, because of the large tax cuts, but did not cut public spending, the United States may have to continue global intervention to fight this battle to fight that battle, I do not know how to spend it。
Impact of capital flows is more complex, I do not have a well-established theoretical conclusion, both may rise or fall, there are a variety of factors cancel each other out here。 For its current account, but also the existence of this problem。
US trade deficit in the past, in fact, is overestimated as it should overseas profits go overseas。
Meanwhile, the US investment income is overrated, overvalued a underestimate, maybe this situation will change after the tax reform, two, compared to its current account, directly affect the tax reform itself may not be particularly large。 However, if tax reform is by stimulating the economy, will stimulate economic growth, then the terms under normal circumstances, it should increase its trade deficit。 Get at the whole, the US Federal Reserve to raise interest rates and tax reform, the increase in the US current account deficit and capital account surplus, but the US balance of payments situation will improve or worsen in the end, that is, whether the current account deficit in the exchange rate does not change the situation adequate financing or capital inflows can be converted without changing the exchange rate for the current account deficit, it is difficult to determine。
The potential implications of my words is the trend of the dollar exchange rate movements, we are now difficult to give a clear conclusion。 In short tax reform is a major event, we should pay close attention, but we do not have to panic, saying the United States how to do our tax reform。
How can we do or how to do。 thank you all。

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