Visiting Professor Rebecca Kysar was quoted in a Washington Post article about the GOP’s tax reform bill.
The Republican tax cut plan has been justly criticized for worsening both income inequality and the national debt, but the plan has another big problem: It’s likely to lead to more outsourcing of U.S. jobs and a larger trade deficit. That’s obviously a negative for factory jobs and net exports, but it’s also precisely the opposite of what Trump continues to promise to many of his working-class supporters.
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For one, firms are already flush with retained earnings — corporate profitability is near record highs — and borrowing is cheap. If they wanted to invest more in productive equipment, plants, or their workers, they could do so. Yet, current investment is lackluster, and that’s not likely to change due to the tax cut (as Trump economic adviser Gary Cohn learned firsthand). A recent survey that asked corporate executives what they’d do with a tax windfall found their top three uses of the money were to pay down debt, buy back their stocks (to boost the price), and do more mergers.
In fact, we’ve tried this experiment. Back in 2004, we allowed multinationals to repatriate deferred earnings at a sweetheart rate of 5 percent. They said they’d invest and create jobs with the money, but instead, they laid workers off and shared the tax break with their shareholders.
In other words, the shift to territoriality does not dampen the existing incentives in our corporate code to offshore jobs. It exacerbates them, which will lead to more overseas production and the loss of jobs here at home. As tax professor Rebecca Kysar observed: a “pressing goal of tax reform is to reduce the incentives for companies to move their operations overseas. [This] bill does the opposite.”