BY THE NUMBERS // Mel Schwarz, Partner, Grant Thornton LLP
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The most direct response to this problem would be a cut in individual rates, but
that may be politically difficult. Congress
should consider a business equivalency
rate to guarantee that when business income from an active trade or business is
passed through to an individual, it’s not
taxed higher than the top corporate rate.
This would allow for equal treatment of
any entertainment venture, no matter how
it is organized, and would preserve existing methods of capital formation.
Even with a rate cut and a shift to territorial taxation, tax reform will present
challenges. In the early part of this century, tax reform was a synonym for tax reduction. With the public’s share of the national debt estimated to exceed 80 percent
of GDP in the near future, rate reduction
and a shift to territorial taxation will have
to be at least partially offset by a broadened tax base. The extent of those changes
will determine if the entertainment industry benefits from tax reform. //
Today, each dollar earned on ticket sales
in a foreign country with a 25 percent tax
rate is charged 25 cents by the foreign
country, and then an additional 10 cents
in U.S. tax when the money is repatriated. Congress has discussed moving to
a territorial system, in which tax would
be limited to the 25 cents paid to the foreign country. As a leading exporter, the
entertainment industry would benefit if
our current worldwide system of taxation
shifts to a territorial system.
Mel Schwarz is a partner in the Washington
National Tax Office of Grant Thornton LLP.