US Policy Changes Vol.16 (Tax Vol.2)

Here are excerpts on tax from Scoring the Trump Economic Plan: Trade, Regulatory, and Energy Policy Impacts (PDF; 9/29/2016) | Peter Navarro and Wilbur Ross.

VI. The Role of Offshoring In The GDP Growth Process
…(1) the role of domestic manufacturing in the process of economic growth and income creation, (2) how corporate strategy guides locational and investment decisions, (3) why high taxation and over-regulation help “push” US corporate investment offshore, and (4) how the “pull” of poorly negotiated trade deals and the unfair trade practices of America’s trading partners help transform what would otherwise be growth-inducing domestic investment into growth-inhibiting outbound Foreign Direct Investment (FDI).

The Role of Manufacturing in Economic Growth
… To be clear, when we are talking about manufacturing, we are not just talking about cheap tee shirts and plastic toys. We are talking about aerospace, biomedical equipment, chemicals, computer chips, electronics, engines, motor vehicles, pharmaceuticals, railroad rolling stock, robotics, 3-D printing, resins, ship building, and more. …

The Offshore “Push” of Unfavorable Tax and Regulatory Policies
… While these are complex investment decisions driven by factors such as market location, resource availability, and the configuration of the supply chain, this is also true: Corporate executives seeking to maximize profits will be far more inclined to produce not in the US but in countries where the tax burden is lower and the regulatory environment is less burdensome. …

Lowering the Federal Corporate Income Tax
@WSJ has offered this Aesop’s-style tax tale to further illustrate the need for such a realignment of incentives:
The US system of world-wide taxation means that a company the moves from Dublin, Ohio to Dublin, Ireland, will pay a rate that is less than a third of America’s. …87.5 cents after taxes… after-tax return drops to $.65 or less…
Figure One: Top Corporate Marginal Tax Rates Over Time

Ending the Unequal Value-Added Tax Treatment Under WTO Rules
… While the US is the largest economy in the world, it has the same WTO voting rights as countries like Albania with economies a tiny fraction of that of the US. …
… While the US operates primarily on an income tax system, all of America’s major trading partners depend heavily on a “value-added tax” or VAT system. …
Under WTO rules, any foreign company that manufactures domestically and exports goods to America (or elsewhere) receives a rebate on the VAT it has paid. This turns the VAT into an implicit export subsidy. At the same time, the VAT is imposed on all goods that are imported and consumed domestically so that a product exported by the US to a VAT country is subject to the VAT. This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pay.
Thus, under the WTO system, American corporations suffer a “triple whammy”…

The WTO’s VAT Rules Are A Poster Child of Poorly Negotiated US Trade Deals
… Donald Trump understands that the only way to correct this unfair tax treatment is for the US to use its status as the world’s largest economy, the world’s largest consumer, and the world’s largest importer to put pressure on the WTO to change this unequal treatment. Without the US as a member, there would not be much purpose to the WTO, but prior occupants in the White House have been unwilling to lead on this issue despite its significant negative impacts. …

Corporate Strategy and the “Push” and “Pull” of Tax, Regulatory, and Trade Policies
…the rules of the WTO… provide no specific dispute resolution mechanisms or relief against the use of either sweatshop labor or lax environmental regulations. Nor… prevent countries from undervaluing their currency to gain competitive advantage.
… The dispute resolution mechanisms that do exist within the WTO make it a lengthy and uncertain process to obtain relief against even the most egregious behavior. Examples include the dumping of steel into global markets by countries ranging from China, India, and Italy to Korea and Taiwan and the use of non-tariff barriers to offset lower tariffs required under WTO rules. …