Trump breaks what should have been an easy promise to keep
If there is one tax reform measure that 99% of the American public can agree on is to not give tax subsidies to companies that offshore American jobs overseas.
This tax break for sending away jobs was signed into law by Bush in 2004.
Democrats are actively proposing a bill to reverse the loophole right now.
The reform is so common sense popular that Trump promised to do this repeatedly.
In a series of tweets Sunday morning, Trump pledged to lower corporate taxes across the board. But he also said he would charge a hefty 35% tax for "any business that leaves our country for another country, fires its employees, [or] builds a new factory or plant in the other country, and ... sell[s] its product back into the U.S."
Trump argued that those companies deserve "retribution." He said businesses that want to offshore jobs have been "forewarned."
Criticism of the bill includes a) it wouldn't bring in much revenue, and b) it wouldn't stop companies from offshoring jobs.
To which my response is: So?
The point is not subsidize the offshoring of jobs.
Surely President Trump the populist can see the wisdom in pushing for this easy win, right?
In fact, we’ve tried this experiment. Back in 2004, we allowed multinationals to repatriate deferred earnings at a sweetheart rate of 5 percent. They said they’d invest and create jobs with the money, but instead, they laid workers off and shared the tax break with their shareholders.
In other words, the shift to territoriality does not dampen the existing incentives in our corporate code to offshore jobs. It exacerbates them, which will lead to more overseas production and the loss of jobs here at home. As tax professor Rebecca Kysar observed: a “pressing goal of tax reform is to reduce the incentives for companies to move their operations overseas. [This] bill does the opposite.”
Interestingly, the tax writers recognized the problem and tried to fix it with a tax penalty for transfer pricing. The alleged patch incentivizes even more offshoring, creating, according to New York Times reporter Patricia Cohen, “new opportunities for small and medium-size firms to use tax havens to slice their tax rate in half.”
Will this be the final step that will break the cult-like faith in Trump by Trump supporters?
Surely they can't rationalize this.