A Tax Cut That Lifts the Economy? Opinions Are Split
“It’s hard to see the stimulative benefit on the economy,” said Lawrence H. Summers, a Treasury secretary under President Bill Clinton. “Most of the benefits as best I can tell will go to wealthy people. The idea that you’re going to get a huge spur to growth is delusional.”
Such dismissiveness failed to deter fans of the twin pillars of the House bill: lowering the top nominal tax rate on corporations to 20 percent from 35 percent, and changing the way global profits are taxed.
“This will make the United States a better place to invest and a better place to be headquartered in,” said Mihir A. Desai, an economist at Harvard Business School who has at times complained about the White House’s economic claims.
Under the current system, multinational corporations have been shopping around the globe for countries with low tax rates where they can locate their profits and sometimes their operations. Those global profits are taxed by the United States, but only after they are booked at home. The result is that companies warehouse trillions of dollars offshore, indefinitely postponing the payment of United States taxes.
Tax rates don’t single-handedly drive investment decisions, and even now deductions and tax credits often shove the rate paid by corporations far below the 35 percent maximum. Still, many economists argue that matching or undercutting the top rate in other advanced industrialized countries — particularly in Western Europe — should encourage investment and productivity.
Slashing the rate to 20 percent is “a pretty dramatic change in the attractiveness of the United States relative to other countries,” said Alan Viard, a tax specialist at the conservative American Enterprise Institute.
Companies were noncommittal on how the plan might actually change their tax practices — like those of Corning, the glass and ceramics manufacturer, which had $3.2 billion of cash and cash equivalents outside the country on March 31. “Given the complexity of our U.S. taxation system,” a spokesman said Thursday, “the devil will lie in the details of any new legislation.”
A shift to taxing domestic and not foreign profits is aimed at discouraging multinationals from moving headquarters, investments and recorded profits abroad. Most other nations have embraced some version of this approach, known as a territorial system.