The White House has offered an olive branch to moderate Democrats over tax cuts
Trim corporate tax, help middle class
By Thomas Zaino
As Washington continues to reel from the failure of partisan politics, it appears that the White House has offered an olive branch to moderate Democrats. Their objective? Tax cuts.
When President Ronald Reagan signed the bipartisan Tax Reform Act of 1986 more than 30 years ago, the modern internet was just a twinkle in computer scientist Tim Berners-Lee’s eye. Since then, technology-driven globalization has altered the U.S. economy forever, and the 70,000-page U.S. tax code has remained woefully inadequate at keeping pace.
Today, most major U.S. companies at least partially conduct operations abroad. And under the current tax structure, their profits are staying there. According to London-based Capital Economics, corporate earnings reinvested abroad total $2.6 trillion, ballooning by 700 percent since 2002.
With the U.S. boasting the industrialized world’s highest corporate tax rate of 35 percent, multinational American companies face a strong deterrent against repatriating overseas earnings. When you consider the global average corporate tax rate is 22.5 percent, it’s no wonder the IRS is left empty-handed.
But global competitiveness shouldn’t come at the expense of American tax revenue. In a 2015 interview with “60 Minutes,” Apple CEO Tim Cook professed that he would “love to” bring home the company’s roughly $181 billion in foreign profits, were it not for the U.S.’s prohibitive corporate tax.
As a cornerstone of his campaign, President Donald Trump proposed cutting the corporate tax rate to 15 percent, putting the nation on better footing to compete with Europe and Asia. Even a more modest 20 to 25 percent corporate tax rate, which congressional Republican leaders consider more practical, would clock in below a large swath of the European Union.
But the crème de la crème of the Trump tax plan is its incentive to repatriate overseas earnings at a 10 percent tax rate, effectively subverting Ireland’s 12.5 percent levy. According to The Los Angeles Times, Ireland’s English-speaking workforce and friendly business climate has driven some 700 U.S. companies to hold $300 billion in the Emerald Isle.
History points to tax breaks as a success. A similar (but admittedly steeper) one-time tax holiday enacted by President George W. Bush in 2004 resulted in the largest four-year tax revenue increase in American history.
Revenue-boosting strategies, along with the elimination of domestic tax-avoidance mechanisms such as loopholes and subsidies, would enable a major restructuring of federal income tax to benefit middle-class Americans.
A Tax Policy Center analysis of President Trump’s plan to reduce the current seven-bracket system to three brackets taxed at 10 percent, 25 percent and 35 percent estimates the vast majority of taxpayers will save between $520 and $2,640. With more money in the pockets of those most likely to spend it, demand stimulates more production, more jobs, and more Americans paying into the tax system.
If congressional Republicans and Democrats work together to cut taxes, they can increase government revenue while simultaneously stimulating economic growth. That’s a win-win for both parties and the American people.
Thomas Zaino is the former Ohio tax commissioner and the current managing member of Zaino Hall and Farrin LLC law firm.
