Whether in German, French or English, the three most pathetic words are “in my opinion”, “à mon avis” and “in my opinion”. Rumination is not hard data and should be avoided at all costs when making serious policy decisions.
In theory, almost anything could happen if corporate taxes were lowered. However, today neither corporate taxes nor other tax rates are voluntarily reduced in policy. Politicians love high tax rates. Whenever politicians work together and agree on tax policy, you can be sure that those policies are always designed to exploit taxpayers.
A good example of this is the recent push by the governments of Switzerland, Japan, South Korea and the European Union in favor of a 15% minimum corporate tax. The drumbeat of slogans such as “Reduce cross-border tax competition” and “Stop the race to the bottom” encouraged US Treasury Secretary Janet Yellen to call for the imposition of this global minimum tax.
“Started in the 1960s”
This pro-tax stance is a 180-degree reversal of the trend started by President John F. Kennedy in 1963, when the top U.S. corporate tax rate was reduced from 52% to 48%, currency depreciation accelerated, and an investment tax credit was granted. An increase of 7% was offered. After the Kennedy tax cuts, which included reductions in income tax rates, the United States recorded budget surpluses for several years. This period was known as the “Go-Go Sixties”.
Not to be outdone, the rest of the world followed the United States' lead and implemented tax cuts. In 1978, the US Senate voted 86-4 to force President Jimmy Carter to cut corporate taxes by an additional 2 percentage points while significantly lowering capital gains tax rates. Despite all these tax cuts, the United States had the highest corporate tax rate in the OECD in 1986 at 46%.
In 1988, President Ronald Reagan rose to the challenge and lowered the top corporate tax rate to 34% and the top personal income tax rate to 28%. The economy was booming. The rest of the world redoubled their efforts and reduced taxes further. Of course, it was President George H.W. Bush who boldly raised the corporate tax rate by one percentage point in 1990.
In 2016, the US rate of 35% was again the highest corporate tax. Following Presidents Reagan and Kennedy, President Donald Trump lowered the top corporate tax rate to 21% in 2017, putting the United States just above the global average.
But perhaps more important is that the United States no longer taxes corporations on their global profits, but only on their profits in the United States. To move from a global tax to a regional tax, the United States required American companies to repatriate profits they held abroad and imposed very reduced tax rates.
There were a number of other features in President Trump's Tax Cuts and Jobs Act (TCJA), such as a slight reduction in income tax, depreciation of investments, significant reductions in inheritance tax, etc. These changes in US tax law have made it more important. More competitive. Here it is!
“You would have thought Trump had poisoned the world's oceans and set the Earth on fire.”
Given the cacophony of criticism from economists, politicians, the press and amateur scientists, one would have thought that President Trump had poisoned the world's oceans and set the earth on fire. Seriously, the claims were that the TCJA created a ten-year deficit of about $1.5 trillion. The dollar will be born, the rich will benefit at the expense of the poor, and growth in the United States will stop. Opinions were taken and opinions were written down, all while waiting for the facts.
We have separated the substance from the excitement and now have enough time to realistically evaluate what happened. People are no longer allowed to have opinions. This is about facts, not how you feel.
the facts:
• In the two years beginning in the fourth quarter of 2017, when the TCJA was enacted, total U.S. federal tax revenues were significantly higher and grew faster than in the previous two years.
• Real economic growth in the United States, which had been slower than growth in the eurozone quarter after quarter, gained momentum over the next two years and outpaced Europe. In the end, US real GDP was 2.67% ($500 billion) higher than it would have been had it grown on a European scale.
• Measured poverty rates in the United States have fallen to all-time lows.
Median household income, which had been stagnant for decades, rose by about $6,000 from $63,180 to $68,700 in the two years after the law was passed.
• Unemployment rates among the poor, the poorly educated, and minorities were at an all-time low at the end of the period.
• Inflation has not accelerated.
These are the facts.
Moreover, President Trump was still an old white Christian man, born into privilege, but that doesn't change the facts about what actually happened after the tax cuts.
Competition wins
Now, when I hear Treasury Secretary Yellen wagging her finger, waxing poetic about the Biden economy, and lecturing the world about why we should raise corporate tax rates, I have to remind myself that these people will reject arguments they know to be true for the sake of the system. To get closer to their political sponsors. This is unfortunately the case.
Competition is the gold standard for good business, and nowhere is it more important than in the competition between the world's governments. Governments must compete on the global stage to attract investors to their countries, create wealth for their citizens, and attract foreign buyers for their products. When governments compete, the people win. A mandatory corporate tax rate of 15% for all countries is anti-competitive, a drag on good economies and should be firmly rejected.
Economics is something everyone does, it's in our DNA. But unfortunately, almost no one understands economics on an intellectual level, and it is horribly misused by politicians in today's environment.
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– The great achievement of Donald Trump
On tax policy, the former president followed in the tradition of Kennedy and Reagan. What is currently happening at the international level is completely strange.
Arthur Laffer