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Taxes

GOP tax bill is good for middle-class Americans

On it rides the success of the Trump presidency: Opposing view

F.H. Buckley
President Trump talks tax legislation on Dec. 5, 2017.

Tension in Washington is high as Republicans ponder the proposed tax bill. On it rides the success of the Trump presidency. Pass it, and he’ll get a second term. Fail to do so, and it’s anyone’s guess what happens next.

The bill is good news for most middle-class Americans. More important, it’s a jobs bill, because it will give firms an incentive to invest in the United States. At present, America’s federal corporate tax rate of 35% is one of the highest in the world, and if you add in state taxes it’s 39.1 % on average, the highest rate in the Group of 20 major and emerging economic powers, and 10% above its average rate. By comparison, in Canada, which is sometimes derisively referred to as Soviet Canuckistan, the federal rate is 15%, and 10.5% for small business, and that should be the model. There’s a worldwide competition for investment dollars, and all other things being equal they’re going to flow to low-tax countries.

What’s worse, the high U.S. rate has given American multinational firms an incentive to leave foreign earnings offshore. An American firm that generates profits from a Canadian subsidiary will pay the lower Canadian rate if it reinvests the money in Canada, but if the profits are reinvested in the U.S. they’ll be taxed at the full U.S. rate. So multinationals have an incentive to leave money abroad, and that means fewer jobs for American workers.

OUR VIEW: Republicans will regret their tax cuts

The bill also offers a tax repatriation holiday, under which American firms with money parked abroad could bring it back and pay a tax rate of just 10%. And how much are we talking about? CNBC reports that American firms have left $2.6 trillion in foreign subsidiaries. That amounts to nearly 14% of U.S. GDP. If firms had an incentive to re­invest the money here, think what this would mean for American jobs.

It’s all about jobs for Americans. You have a problem with that?

F.H. Buckley teaches at George Mason University’s Scalia Law School and is the author of The Republic of Virtue: How We Tried to Ban Corruption, Failed, and What We Can Do About It.

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