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Let's count the ways America benefits when corporate taxes are cut from 35 percent to 20 percent
The United States has one of the highest corporate tax rates in the world. If you want to know why so many U.S. companies go through "inversions" (setting up new corporate headquarters in other countries), there's your answer. Why pay 35 percent of your net earnings when you can pay a much lower rate elsewhere?
So the long-overdue proposal released Thursday to reduce the corporate tax rate to 20 percent is one of the most important economic developments this country has seen in a very long time. It's part of a much larger Republican proposal, and there's plenty of time to talk about the other provisions. But for today let's focus on the corporate tax rate, because there's nothing that will do more to spur productivity and economic growth.
If you don't like this because you think it's a "giveaway to corporations" or something along those lines, then you really don't understand how wealth and opportunity are created in a free economy. Here are some of the very real, tangible ways this proposal will benefit everyone in this country:
1. The corporate tax cut will free up approximately $200 billion in capital every year to be reinvested into the economy.
2. The transfer of this wealth from control of politicians to business people will ensure that capital fuels real, profit-driven productivity rather than simply being transferred to politically favored constituencies. In other words, if you want some of that capital, you'll have to do something productive to earn it. That's how economic growth happens.
3. A company that earned $100 million in profits will now save $15 million on its federal tax bill. What can a company that size do with a suddenly found $15 million? How many people can it hire, products can it develop, machines can it buy, facilities can it expand?
4. The professional service industry should benefit tremendously from this tax change, particularly smaller practitioners. Why, you ask? They don't pay massive taxes, after all. You're right, they don't. But the massive corporations they'd like as clients do. Many of these corporations view the services of such professionals as a luxury they would like, but can't afford when margins are too tight. Freeing up extra cash for big corporations will give professional service providers more opportunity to secure large corporate contracts.
5. Wages will increase, but not for the reason some people think. Many of the arguments liberals make against corporate tax cuts is that corporations will just pocket the money and won't share it with their workers. But that's not how business works. The goal of a corporation is to be more productive and profitable, and you need capital to invest in productivity. When productivity rises, wages follow because workers can provide more value. Corporations aren't going to raise wages just because there's more money sitting around, nor should they. They'll raise wages because the greater capital availability will make it possible to increase productivity.
6. Liberals argue that the government would spend the $200 billion as well, so it would be reinvested back in the economy regardless. The government would spend it, but businesses will spend it more wisely because they're accountable for the result of the spending. Also, you always spend money more wisely when it's money you earned as opposed to money you simply confiscated from someone else. That's why lottery winners so often end up in bankruptcy.
I have rarely been more excited about a policy proposal that had a serious chance of passing. I know it's not my 9-9-9 plan, which I still think was an excellent way to transform the entire tax code. I'm not saying this change leaves nothing else that needs to be done.
But the benefits it brings the American people will be enormous. Pass it!
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