“Tax reform, by closing loopholes, will reduce distortions, so productive activities are prioritized over unproductive ones designed merely to win tax credits. Reform will also remove incentives for companies to move offshore and keep overseas profits abroad.”
Democrats’ straw man fights tax cuts
December 4, 2017
But the lesson here is not that corporate tax cuts don’t and won’t create jobs. Companies that spend an inordinate time scheming to avoid tax, and less time growing an efficient business, do so because the tax code encourages them to behave that way. They are slower to invest in making money the productive way because real business activity is riskier than the squeezing of every last penny out of a corporate tax return.
This is how a dysfunctional tax system such as the one we now have strangles a national economy, and it is why lower tax rates are needed without delay.
The main point of lowering tax rates and getting rid of loopholes is to encourage corporations to spend more time, effort, and investment on productive activity, and less time on devising new methods of minimizing tax exposure. Less productivity is detrimental to the economy.
Because the U.S. has nearly the highest corporate tax rate in the industrialized world, American companies spend a significant, even outlandish, number of man-hours and money figuring out how to avoid paying it. They exploit loopholes, forgo opportunities, and worst of all, avoid bringing their profits home for reinvestment.
Tax reform, by closing loopholes, will reduce distortions, so productive activities are prioritized over unproductive ones designed merely to win tax credits. Reform will also remove incentives for companies to move offshore and keep overseas profits abroad.
Many companies would love to invest overseas after-tax profits in their American operations, but this would require them to surrender an enormous share of the money to the U.S. Treasury.
By removing incentives for irrational behavior, tax reform can dramatically increase the amount of corporate investment within America. It’s not just that corporations get some extra money to pass along. Rather, they’ll be freed up to operate in a whole new and far more efficient way that will inevitably result in new opportunities to grow and greater success against foreign competitors.
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