Cutting the headline rate of corporate tax should reduce the effective rate by several percentage points © AP

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Recent Senate approval for a deep cut to the US corporate tax rate has triggered bitter arguments over who will benefit. One certainty is that a 15 per cent reduction would be a PR coup for the US as a business location. For all of President Donald Trump’s “America First” rhetoric, foreign capital would be as welcome, and as well-rewarded, as the footloose US kind.

Steven Rosenthal, of the Tax Policy Center, has calculated that slashing the US corporate rate to 20 per cent should have a short-run benefit for investors of around $200bn a year. About a third should fall through to foreign entities. He assumes that the cut benefits owners first, before increased investment raises the wages of workers.

The $70bn windfall depends on an inclusive definition of foreign investors. Mr Rosenthal added unlisted equity, typically in the US subsidiaries of overseas corporations, on to listed stakes. Such holdings matter to the success of Mr Trump’s tax plan. This requires investors — particularly the direct sort, such as BAE Systems of the UK or Toyota of Japan — to chase improved returns in the US. For them, the effective corporate tax rate, defined as the toll on marginal investment, matters more than the headline rate.

The latter is freakishly high at 35 per cent. Generous allowances mean the former is far lower. The Congressional Budget Office estimates that in 2012 the US effective rate was 18.6 per cent, lower than the level for the UK, where a competitive headline rate has been a fetish of government and business.

Eric Toder, another tax expert at the TPC, reckons cutting the headline rate should reduce the effective rate by several percentage points. That should leave it mid-table among G7 nations. The extent to which corporations exploit that opportunity is moot. Many will increase payouts to shareholders instead. But US tax reform is evidently a case of international fund managers first, US workers second.

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