The central economic goal of Donald Trump’s administration will be to boost U.S. economic growth. Steven Mnuchin, Trump’s nominee for treasury secretary, has said that the administration’s objective is to raise the rate of GDP growth to three to four percent, doubling the rate achieved over the last decade. This will be accomplished by establishing a globally competitive corporate tax rate, adopting a territorial corporate tax system, reducing excessive regulation, boosting domestic energy production, and introducing better trade policies.
The United States has the highest corporate tax rate of any country in the Organization for Economic Cooperation and Development. At 35 percent, the U.S. rate far exceeds the rates of the United Kingdom (20 percent), Germany (16 percent), Canada (15 percent), Ireland (13 percent), and many other countries. This high rate discourages investment, and reducing it will encourage it. The Trump administration plans to lower the corporate rate to 15 percent, eliminating the disadvantage for U.S. companies, making the United States a more attractive destination for investment, and creating jobs for American workers.
In addition to a high domestic corporate tax rate, the United States also imposes a 35 percent tax on repatriated foreign earnings (with a credit for any foreign taxes paid). This has led U.S. companies to locate their manufacturing operations abroad and to keep their foreign earnings abroad, as well, rather than bring them back to the United States. Few other countries have such a policy, and it is one reason why U.S. companies have parked an estimated $2.5 trillion overseas.
This unfavorable tax structure, moreover, has caused many U.S. companies to behave oddly. Apple, for instance, borrows money in the United States, even though it has over $200 billion in cash reserves abroad (kept there in order to avoid paying the taxes that repatriation would generate). The chip maker Qualcomm recently announced a $39 billion acquisition of the Dutch company NXP Semiconductors—a move that will help it avoid paying billions in U.S. taxes, according to Americans for Tax Fairness. And scores of U.S. companies have actually “inverted,” turning themselves into nominally foreign companies so as to take advantage of such firms’ ability to bring cash earned abroad into the United States tax free.
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