What a state we have placed ourselves in, when U.S. companies with assets abroad must pay a 35% tax on all foreign-earned profits that are brought back into the country. Further complicating the situation, if profits from U.S. owned foreign subsidiaries are allowed to stay out of the country then that money is taxed at a lower rate.
In today’s Wall Street Journal Allen Sinai, chief global economist and President of Decision Economics wrote that under those conditions our government would do well to take action to reverse this trend by changing the tax penalty for American companies with foreign subsidiaries to provide incentive for those companies to bring foreign earned dollars back into the U.S. Sinai estimates that if that situation were to come about the U.S. would bring $545 billion into our economy without increasing our deficit. This is a novel idea.
If the government were to turn the current state of tax laws around so that instead of penalizing companies for bringing money into the country it would provide incentive for them to do so it could have a reverse domino effect on the contracting economy. Imagine what would happen if that amount of free market money, not government spending stimulus funds, were to get injected into our economy. The companies who brought the money into the country would not need to rely so heavily upon credit for their business operations. With a decreasing credit demand, these companies could be more financially independent than they would be if they had to use credit to move forward and foster their own growth.
Sinai argues that this would make these companies much more able to grow since they would be detached from that aspect of the country’s economic woes. This would help foster real economic growth without the need to repay a giant debt to the government. With this growth would come jobs, with the jobs would come more tax revenue. So the government could gain from this type of stimulus instead of having to foot the bill.
Obama wants to find a way to jump start this economy with a giant stimulus plan that is rapidly approaching $900 billion. With so many losing their jobs the general fund in Washington is shrinking faster than congress can vote on bills. We as a nation have placed a lot of trust in Obama and I am sure he wants to get things back on track as permanently as possible. He has made it clear that he doesn’t just want a quick fix unless it will also be the right one. He doesn’t want this contracting economy to just be forestalled temporarily only to begin contracting again when an ineffectual, temporary fix wears off.
Obama has mentioned that he wants to provide incentives for companies to invest their profits at home instead of elsewhere where there are no penalties placed upon investment. With our cost of living as high as it is, American labor costs are too expensive to compete with the same costs in, say, Mexico, Taiwan, Hong Kong or Sri Lanka. Under the current global economic conditions it is a wonder that our companies still have these tax penalties in place any more.
Obama is right to want to send some form of relief directly to the people who are desperately slugging it out while watching their neighbors get hit by layoffs one by one, all the time hoping that they themselves won’t be hit next. It is also right to try to find a way to stimulate the economy from the other end and change the tax laws in order to provide incentive for companies to bring money back into the U.S. and create jobs here. It could even relieve the government of some of the burden having to pay for all this.
In today’s Wall Street Journal Allen Sinai, chief global economist and President of Decision Economics wrote that under those conditions our government would do well to take action to reverse this trend by changing the tax penalty for American companies with foreign subsidiaries to provide incentive for those companies to bring foreign earned dollars back into the U.S. Sinai estimates that if that situation were to come about the U.S. would bring $545 billion into our economy without increasing our deficit. This is a novel idea.
If the government were to turn the current state of tax laws around so that instead of penalizing companies for bringing money into the country it would provide incentive for them to do so it could have a reverse domino effect on the contracting economy. Imagine what would happen if that amount of free market money, not government spending stimulus funds, were to get injected into our economy. The companies who brought the money into the country would not need to rely so heavily upon credit for their business operations. With a decreasing credit demand, these companies could be more financially independent than they would be if they had to use credit to move forward and foster their own growth.
Sinai argues that this would make these companies much more able to grow since they would be detached from that aspect of the country’s economic woes. This would help foster real economic growth without the need to repay a giant debt to the government. With this growth would come jobs, with the jobs would come more tax revenue. So the government could gain from this type of stimulus instead of having to foot the bill.
Obama wants to find a way to jump start this economy with a giant stimulus plan that is rapidly approaching $900 billion. With so many losing their jobs the general fund in Washington is shrinking faster than congress can vote on bills. We as a nation have placed a lot of trust in Obama and I am sure he wants to get things back on track as permanently as possible. He has made it clear that he doesn’t just want a quick fix unless it will also be the right one. He doesn’t want this contracting economy to just be forestalled temporarily only to begin contracting again when an ineffectual, temporary fix wears off.
Obama has mentioned that he wants to provide incentives for companies to invest their profits at home instead of elsewhere where there are no penalties placed upon investment. With our cost of living as high as it is, American labor costs are too expensive to compete with the same costs in, say, Mexico, Taiwan, Hong Kong or Sri Lanka. Under the current global economic conditions it is a wonder that our companies still have these tax penalties in place any more.
Obama is right to want to send some form of relief directly to the people who are desperately slugging it out while watching their neighbors get hit by layoffs one by one, all the time hoping that they themselves won’t be hit next. It is also right to try to find a way to stimulate the economy from the other end and change the tax laws in order to provide incentive for companies to bring money back into the U.S. and create jobs here. It could even relieve the government of some of the burden having to pay for all this.
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