Last month in a pessimistic tone, House Speaker Paul Ryan announced that tax reform would take longer than repealing and replacing Obamacare. But with Republicans and Democrats holding enough votes to thwart most efforts, comprehensive tax reform represents a fool's errand.
Instead, Congress should pass tax reform in digestible portions. For example, cutting tax rates on earnings of U.S. corporations held abroad is a win-win that would find acceptance by even the most hardened DC taxer/spender.
The United States has the third highest corporate income tax rate in the world, at 39.1% when state taxes are included. It is exceeded only by Chad and the United Arab Emirates.
Due to U.S. high corporate tax rates, many U.S. corporations squirrel the profits in off-shore accounts or invest the cash in plant, equipment and technology among America's competing nations, rather than bringing profits home from abroad. Worse still, some U.S. companies engage in inversions, whereby a U.S. company moves its headquarters to low tax nations, such as Ireland with its 12.5% tax rate.
Congress and the Trump Administration should take action that would increase tax collections, reduce tax inversion deals and boost U.S. corporate investment. Currently, it is estimated that U.S. firms hold as much as $3 trillion abroad.
Assuming a one-time corporate tax rate of 10% on repatriated earnings of $2 trillion, 2017 tax collections would climb by $200 billion. The remaining $1.8 trillion of repatriated earnings could be used for (desirable to less desirable):
1) investment in plant, equipment and technology;
2) dividends to investors;
3) stock repurchases; and
4) salaries to employees.
Both Democrats and Republicans can and would sign on to this winning tax reform in a speedy fashion.