Both Hillary Clinton and Donald Trump say they want to stop companies from sending American jobs overseas, but their current plans for approaching that task promise to leave them looking like Elmer Fudd haplessly chasing a “dubbuh-cwossing wabbit.”
Trump recently told the New York Times he would spend his first 24 hours as president on the phone with executives of major companies threatening debilitating tariffs if they don’t stop moving jobs overseas. Clinton, meanwhile, cut a television ad in the parking lot of a Milwaukee company she ominously threatened will “pay a price” for merging with a foreign firm.
The unifying theme here is the idea presidents can address this issue by bullying individual companies into submission like a Latin American strongman. It should go without saying the biggest hindrance to this approach is the Constitution, which, broadly speaking, does not allow presidents to punish arbitrarily companies that incite their wrath. Also, news flash: There are 30 million companies in the United States. Good luck tracking all of them to dole out the heated phone conversation that solves all our problems.
It’s silly. Especially so because it ignores the glaring, egregious, flagrant problem that is the single most important factor causing American companies to relocate overseas: tax rates. The United States has the highest corporate tax rate in the developed world at 39 percent. If you include every single country, including the completely dysfunctional ones, only Chad and United Arab Emirates are higher.
We have a byzantine code riddled with loopholes, the result of a long-running crony capitalist alliance between the big companies that want to insulate themselves from competition, the lobbyists that get paid major moolah to make it happen, and the lawmakers who like the campaign cash and fancy steak dinners where the deal is struck. One of the last countries to do so, the United States assesses corporate taxes on income earned anywhere in the world, not just in America, creating exceptionally burdensome compliance costs and prompting American companies to store trillions in assets in other countries for tax purposes.
We still think of Europe as the high-tax region. Not anymore. Their governments have responded to globalization and are enjoying the fruits of those decisions. It’s the United States that is stuck in the past, and it’s getting worse every year. The next president must take on tax reform in his or her first 100 days. It’s time to end the decades of broken promises from the political class and make our business climate competitive again.
The punitive approach will backfire. Taken to its logical conclusion, you will see the next generation of great companies incorporate other places while the economy here languishes. Even the recent actions by President Obama to target specific mergers with “temporary” regulations are putting a significant damper on investment.
Clearing out decades of special breaks from the code will not only mitigate the lower revenues that result (in the short-term) from a lower rate, but will eliminate countless market distortions introduced into the marketplace for all the wrong reasons.
This will make our economy stronger. It will lead to more high-paying jobs in the United States. And what it really takes is political will — the leaders of both parties agree on the need for reform in concept. Trump and Clinton need to drop the posturing and start focusing on the real, constructive thing that could make a big difference on this: tax reform in the first 100 days.
