Gimme Shelter: Foreign Finance Ministers Protest Trump Tax Plan - The American Spectator | USA News and Politics
Gimme Shelter: Foreign Finance Ministers Protest Trump Tax Plan

The Democrats’ opposition to President Donald Trump’s tax plan finds unusual allies — abroad.

The finance ministers of Germany, France, Spain, Italy, and Great Britain have voiced their objections to the Trump tax plan in a letter to the U.S. secretary of the treasury. Steve Mnuchin’s foreign counterparts charge that the tax bill may “discriminate in a manner that would be at odds with international rules.”

The bill, for instance, imposes a new 20 percent tax on payments from U.S. companies to foreign affiliates. International transfers between financial institutions also get hit with a 10 percent tax that the foreign finance ministers consider unfair.

Many Americans, at least ones not owning multinational companies, regard the current system incentivizing overseas tax havens quite unfair.

American companies keep an estimated $2.5 trillion abroad. “Made in America, Taxed in Bermuda” does not make sense to U.S. taxpayers. Yet, the current tax code encourages just that.

Apple, Google, and Microsoft alone shelter more than $400 billion overseas. According to Bloomberg, Google keeps three-fifths of its cash and marketable securities abroad. Facebook shelters about a quarter of its cash and marketable securities. Microsoft shields more than 19 of every 20 dollars.

The tax bill advanced by the Trump administration begins to address this problem. One grasps why foreign finance ministers do not like that. But Trump could have, and should have, gone much further.

Cutting the corporate rate from 35 to 20 percent (or the 21 percent now floated as a strange compromise between the 20 percent proposed by the House and the 20 percent proposed by the Senate) encourages the repatriation of profits by giving companies less reason to keep money away. Taxing all corporate income at a uniform 20 percent rate, with credit for any foreign tax paid, would finish that job. Instead of ducking the taxman by keeping money overseas, companies paying a uniform 20 percent rate — wherever the money currently calls home — would no longer “discriminate in a manner that would be at odds” with U.S. rules of fair play.

This make-up-the-difference tax, proposed here repeatedly but not in the tax bill working its way to the president’s desk, would mean U.S. corporations paid the U.S. rate no matter where they store their cash. Corporations holding money in Ireland that pay a 12.5 percent rate, for instance, would then be required to pay an additional 7.5 percent to the U.S. treasury to bridge the gap between what they paid overseas and what the U.S. corporate rate imposes. In this way, corporations pay the 20 percent rate no matter where they keep their cash.

Few proposals to raise revenue also stimulate rather than burden the overall economy. But this one does. One needn’t possess Nostradamus’s powers, or even Madam Cleo’s, to predict the outcome. Faced with paying the same amount no matter where they keep their funds, U.S. companies likely keep their funds in the U.S. And the ones that choose not to do so likely hold legitimate reasons not to do so.

This make-up-the-difference tax stands to boost revenues, reduce the deficit, repatriate trillions of dollars, and create a level playing field between corporate competitors. With $2.5 trillion stored overseas, this repatriation tax figures to inject a huge amount of money into the American economy and the American treasury.

For the first three decades after the institution of the income tax, federal revenues from corporations generally eclipsed revenues from individuals. The situation has reversed itself in a dramatic way since World War II. Currently, corporate taxes yield less than 10 percent of the IRS’s total annual take. Ironically, lowering the corporate rate, if coupled with a uniform tax on corporations no matter where they keep their cash, could actually boost tax revenues.

Beyond this, the basic idea transcends party politics. The Democratic Party seeks more revenues, and especially more revenues from corporations. The Republican Party wants a simpler, fairer tax code. The Trump Party wants to Make America Great Again, which tax repatriation, far more than any protectionist scheme floated, helps achieve.

Alas, just as wits instruct that some ideas are so stupid that only an intellectual could believe them, politics teaches that some ideas make too much sense for legislators to embrace them.

Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.

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