Today on the Money Never Sleeps Radio Show with Louis Velazquez we are talking about Global Intangible Low-Taxed Income or GILTI and the impact it has an for those that don’t know what this is, basically its corporate taxes on U.S. companies bringing money back to the U.S. from overseas.
Currently taxes on foreign profits is 10.5% the Biden administration is looking to double that to a statutory rate of 21% , which would become an effective rate 26% , basically it could be a $650B cost to US businesses over 10 years.
This will lead to more US companies being taken over by overseas companies, it will lead to earnings overseas staying overseas , so the hike will make US companies less competitive.
In 2018 U.S. companies repatriated offshore cash to the tune of $1 trillion and that created jobs, growth, increased manufacturing and other operations in the United States, this changing and essentially doubling will impact U.S. growth.
There is no general global tax so the United States not only having a 10.5% one but now its set to double, well there will be consequences to that and it will have a negative impact on businesses and the economy. It will reduce capital spending across the board and it will be felt not today but it will be felt 12-24 months later.
So with the U.S. in boom mode and according the JP Morgan’s Jamie Dimon it has the potential to last trough 2023, this hike in GILTI may be felt at that point, so enjoy the ride while it lasts because it never lasts. Dimon also added that he sees traditional banks having less of an impact as the likes of Amazon, Facebook, Apple, Google, Walmart and other fintech companies continue to grow. These companies are giving their customers a wide array of banking services but through their fintech platforms.
You will see companies like Stripe, Square and SoFi continue to expand their footprint and this will systematically take chunks out of the traditional banking system. So we will see big banks either pivoting and embracing what the future is or just wind up becoming the next casualty of the digital future.
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