Archive for the ‘#taxreform’ Tag

Benefits of International Tax Competition for US Workers   Leave a comment

Romina Boccia & Julia Howe

Found on FEE

The Tax Cuts and Jobs Act is continuing to produce tangible benefits for Americans, growing the U.S. economy and making it more competitive for business investment and job creation.

Wages are rising, unemployment rates are declining, and there is more money in taxpayers’ pockets.

The larger economy materializes as significantly higher take-home pay for the typical American. According to a recent Heritage Foundation report, the average American will be $26,000 richer over the next 10 years, thanks to tax cuts and a larger economy.

There is even more good news: Tax reform has not only encouraged investment domestically but has fostered a more attractive investment climate on an international scale.

The corporate tax rate cut (from 35 percent to 21 percent) significantly improves America’s position in global financial markets. Businesses are more inclined to conduct and expand their operations within U.S. borders and employ American workers.

These critics fear countries will attempt to undercut each other with lower and lower tax rates.

Yet some have condemned the tax cuts on this very basis, arguing that they contribute to “unhealthy” international tax competition. These critics fear countries will attempt to undercut each other with lower and lower tax rates.

New York Times op-ed called international tax competition a “collective action problem,” suggesting that countries would benefit more from higher corporate tax rates and that they fail to cooperate in imposing higher rates because of incentives to compete for businesses and high-skilled labor.

The article claimed that the U.S. business tax cuts contribute to this problem by reducing tax revenue, thereby harming America.

That argument is flawed both in economic theory and in practice.

A recent paper authored by Assaf Razin and Efraim Sadka, published by the National Bureau of Economic Research, examines the implications of financial globalization, where mobile capital can easily respond to tax and regulatory conditions by moving across borders.

The paper uses a simple model to demonstrate that there are benefits from tax competition, and it shows that countries are better off when their corporate taxes are lower.

The high capital tax rate results in a less productive economy and smaller tax base.

The model assumes that as financial globalization increases, businesses can relocate to more competitive economic environments at a lower cost.

When tax rates in one country are consistently elevated, mobile capital moves to other jurisdictions. New investments in factories and research are made in countries with lower taxes.

Because the capital can move to other countries, workers are left with the tab through lower wages and fewer jobs. The “corporate tax burden” is shifted to labor or consumption in places with high capital taxes.

The high capital tax rate results in a less productive economy and smaller tax base. This combination causes revenue to decrease as there is overall less economic wealth generated and, therefore, less to be taxed.

In contrast, a lower corporate tax burden attracts businesses, creating an environment of greater innovation and prosperity, with benefits for all residents.

The model finds that workers at all skill and income levels are better off with lower business taxes. A bigger economy provides opportunities for greater financial security and income mobility, decreasing the need for government-provided assistance.

The U.S. previously had the highest corporate tax rate, at 35 percent, among the 36 OEC) countries.

A new job or a higher wage help people in need more than a welfare check ever could. Less government intervention and a lower corporate tax rate help residents, providing them with valuable earning opportunities to become wealthier and more financially independent.

The tax burden is one of the 12 factors in The Heritage Foundation’s Index of Economic Freedom affecting the level of economic freedom that citizens can enjoy. Without accounting for the new tax law, the U.S. had a tax burden score of 65.1 in the index. The U.S. was nearly 12 points below the world average score of 76.6 and ranked as 153rd out of the 180 countries whose economic freedom the index assesses.

While the U.S. previously had the highest corporate tax rate, at 35 percent, among the 36 Organization for Economic Cooperation and Development (OECD) countries, the new 21 percent rate is below that of 19 OECD countries.

The U.S.’s index score is likely to improve with the next iteration and demonstrates that the U.S. was in need of tax reform to be more globally competitive.

In addition to the corporate tax rate, the base of what’s taxed matters as well.

The tax law’s changes to expensing rules have important economic effects. Full expensing allows businesses to deduct all investment expenses from taxable income at the time the investments are made. This change encourages more investment in productive capital.

Everyday Americans are enjoying greater wealth and freedom, thanks to the tax cuts. It’s time to make them permanent.

These expensing provisions, which begin to phase out after 2022, should be extended permanently for even greater economic growth.

According to sound economic theory, the tax cuts are benefiting our economy through encouraging investment by domestic and international businesses, and there is ample evidence this theory holds true in practice.

There has been rapid growth in capital spending, with many examples of both small and large businesses investing in expanded operations. This is increasing worker productivity and wages.

Everyday Americans are enjoying greater wealth and freedom, thanks to the tax cuts. It’s time to make them permanent.

Not Crumbs   Leave a comment

According to Nancy Pelosi and 90% of the progressive liberal news media, the tax cuts of 2017 amount to crumbs for middle- and working-class wage earners. We should be up in arms that the “rich” (i.e., our employers) got such huge cuts and we only got a little.

I ran the numbers.

Image result for image of nancy pelosiBrad and I together made just a little less than $50,000 in 2017. We had a nice bump from book sales this year – not exactly burning up the best-seller’s lists, but it felt good. Because Brad is self-employed, we won’t know how much tax reform affects him until we do our 2018 taxes, but my income from my job comes with check stubs. Starting my first paycheck in 2018, I immediately saw $150 extra in my net pay. That works out to almost $4000 for the year. Then, I just finished our 2017 taxes. Reform had a muted effect this year compared to what it will have next year, but our tax refund was $1000 more than it was in 2017 because we could take a deduction for our full-time student who still lives at home.

That’s $5000 for 2018 – money that I earned that was stolen from me in taxes and is now being given back to its rightful owner.

When you make $50,000 a year, $5000 is a lot of money. That’s my tithe, or a pretty-decent new-for-us vehicle. It certainly isn’t crumbs, Mrs. Pelosi.

Tax Reduction? Yay! But …   Leave a comment

So I’ve been kind of nice to Donald Trump lately. I admire his regulatory rollback via executive order. But I’m not a Trump supporter, so don’t expect that to continue. I said when he got it right, I’d say so. That’s what I’m doing.

I’m writing this in late April to give myself some time to work on my novel. Trump has just released his tax plan and we will probably know the outcome by the time this publishes. No problem. I actually kind of like seeing how well I guess at something.

Under President Trump’s proposed tax reforms, individuals and corporations could see lower tax rates, and the number of tax brackets reduced. Conversely, the reforms would also eliminate most other deductions beyond the standard deduction, charitable contributions, and deductions for mortgage interest.

The standard deduction would be doubled, which is really a good thing for families, especially in the middle class. However, it takes that many more people off the tax rolls. Philosophically, I want to see the elimination of income tax entirely, but I oppose the idea that 50% or more of the population doesn’t may it. Why? Because those who pay no effective taxes tend to believe they “pay the right amount” and are much more comfortable with imposing taxes on those who make more than them, so they will vote for that … and that is just wrong. It’s as wrong to mug a millionaire in the park as it is to mug a poor person.

Corporate income taxes would drop to 15 percent. I’m not a corporation and Brad’s business is a sole-proprietorship, but this is tremendous news for small business people across the country who were absolutely hammered by Obama’s regulations. He appears unconstrained by the fake concept of revenue neutrality. Deficit neutrality should be achieved through spending cuts rather than revenue increases and experiences around the world have shown that a reduction of the corporate rate pays for itself. Canada and England have dramatically cut their rates and their revenue to GDP have stayed the same. Also, we know that the payoff in term of economic growth will be huge. We saw that in the 1980s, following Reagan’s tax restructuring.

Press releaseTrump also wants to repeal the alternative minimum tax (sometimes called the “awfully mean tax” because it overrides your potential deductions) and the estate tax (a.k.a. death tax). The information available right now is basic that it can be summed up by the graphic to your left, which came from a journalist who attended the White House press briefing.

It would eliminate deductions people claim for paying state and local income taxes, which could impact people who live in states like California and New York. Treasury Secretary Steve Mnuchin said it wasn’t the federal government’s job to “subsidize” these states. He’s absolutely right, though at current federal income tax rates combined with state income taxes in high-tax states would amount of about 80% of many people’s incomes.

Veronique de Rugy, Reason columnist and senior research fellow at the Mercatus Center of George Mason University, had a quick initial response:

Cutting the capital gain tax rate is good and so is his proposal to end many deductions. Plus ending the death tax and the AMT is excellent. I like the individual tax reform based on what I have seen but where are the spending cuts?

“Where are the spending cuts?” is libel to be a refrain from both libertarian and small-government conservatives who otherwise have positive feelings about these changes. Trump has shown a willingness to cut federal programs, but then he turned around and increased military spending as if that was somehow going to save the taxpayers money. I remember when Reagan promised the spending cuts would come later … and we had to wait for the Contract with America more than a decade later. Back then the national debt was considerably less than a trillion dollars and now it’s at $20 trillion. I don’t think we can wait for … later.

Posted May 16, 2017 by aurorawatcherak in economics, Uncategorized

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