GILTI: The Ramifications On The Tax Burden Of Corporations

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In his Daily Market Notes report to investors, while commenting on GILTI standards, Louis Navellier wrote:

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Q1 2021 hedge fund letters, conferences and more

We are now essentially in "economic nirvana." Examples: On Wednesday, the Atlanta Fed raised its first-quarter GDP estimate to a 6.2% annual pace, up from 6% previously estimated. The U.S. is still expected to boost the global GDP growth rate more than China in 2021, for the first time since 2005. Since the U.S. is a robust consumer-driven market, the U.S. has the potential to keep pace and exceed China’s overall GDP growth in 2021, since the U.S. economy is about one-third larger than China’s.

Uber posts the biggest bookings since the pandemic began This is Hard evidence about the snapback in travel demand, including a shortage of drivers while millions are still classified as unemployed.

The Biden Administration Wants To Change The GILTI Tax Standards

Hot topic:  Biden Administration’s future tax policy is on how to generate more taxes from the revenues U.S. corporations produce outside of the United States.

The Trump Administration actually led this movement, as the Tax Cuts and Jobs Act (TCJA) introduced several new rules for taxing foreign profits of U.S. multinationals, including rules related to “Global Intangible Low Tax Income” (or GILTI) that result in a minimum tax of 10.5% on foreign profits.

The Biden Administration, led by Treasury Secretary Janet Yellen and many Democratic members of Congress, wants to make some material changes to the GILTI tax standards, and policymakers are busy figuring out what the ramifications will be on the tax burden of corporations.

The tax burden on GILTI was intended to fall on profits from intangible assets, such as patents that U.S. companies hold abroad.

GILTI Tax Standards

Whatever the end game is for policymakers, taxes for corporations and for individuals are about to increase by varying degrees. To date, the stock market has paid little attention to this soon-to-be reality, instead opting to focus on Fed QE policies and Congressional stimulus. At some point, it would seem that this transformational change in tax policies will matter to the stock market – but then again, maybe not.

The Rise In The Producer Price Index

The latest inflation figures show a rapid escalation to a 1% (monthly) rise in the Producer Price Index, which is a 12% annual rate. The major commodity price indexes are soaring at double-digit annual rates. It’s only a matter of time until producer prices translate into consumer prices. The massive amount of cash in the bank accounts of consumers and corporations is just itching to be spent, and post-COVID, Katy bar the door.

The International Monetary Fund (IMF) has just lifted its 2021 growth forecast for the U.S. by a giant leap forward, from 5.1%, to 6.4%, the fastest U.S. GDP growth rate since 1984, “Morning in America” under Reagan. These are the fruits of the multi-trillion-dollar stimulus packages under Trump and Biden.

Amazingly, official Fed policy is to try to push their favorite inflation metric higher, to 2%. In a Barron’s interview (“A Central Banker on a Mission,” April 12, 2021), San Francisco Fed President Mary Daly, a voting member of the FOMC this year, said “We have struggled for a whole decade…to get inflation up to our 2% goal.” Then she promises, “We always have the tools to pull inflation down if it gets too high.”

File that promise away for future review – or review Paul Volcker’s experiences in 1979-82 to see how he struggled to rein-in double-digit inflation: We had to suffer two recessions that felt like a Depression.