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The Paladin

Furman University's Student Newspaper

The Paladin

Furman University's Student Newspaper

The Paladin

Republican Tax Bill Should Do More at Corporate Level

Republican+Tax+Bill+Should+Do+More+at+Corporate+Level
Courtesy of Furman Athletics

The new Tax Bill proposed by the Republicans has continued to gain attention as economists predict that its effects will drive up the national deficit by an estimated one trillion dollars. Overall, the Tax Bill includes general cuts to all economic brackets. For the majority, however, these cuts are only temporary, lasting until the year 2026 in which the taxes will return to the rates that they were previously. For corporations, the tax cuts are permanent, for the Republican party attempts to incentivize companies from going overseas to foreign markets. However, what this does is quite the opposite: it pushes corporations to go abroad, knowing that sometime in the future their foreign profits will be given tax-breaks accordingly. Instead, what the U.S could do is tax the foreign profits at a rate of 40-45%, as a penalty rate to punish corporations for not bringing back their money sooner.

Devising methods to incentivize corporations to stay in America and compete in our market is a complex issue, though their level of involvement is unimportant anyway when it comes to tax breaks. The Tax Bill assumes that by giving these corporations tax cuts, they will not only come back to the United States, which I stated is unimportant for the framework of this argument, but that this money will also be invested in a manner which helps the average American. In 2004, following the Bush administration’s “repatriation holiday” idea, most corporations rechanneled their funds into higher dividends and more stock buybacks, which only affects those who are directly investing in the stock-market, specifically those with larger stock-market holdings. Thus, such breaks tend to help wealthy stock-owners rather than the overall economy, leading to an even higher concentration of wealth at the top and an exacerbation of the original wealth gap. In addition, corporations will use the money brought back to purchase other businesses and remove competition from the domestic market, though this assumes that they even use their funds for business transactions such as these in the first place; many corporations will instead mark such funds as profit.

Intuitively, it makes little sense for a corporation, even if they face penalty taxes, to refuse a business venture that will earn them a profit. In today’s economy, loans for corporations are exceedingly low, and if there is enough opportunity in the domestic market for a profit, corporations will opt to take out loans to sponsor their transactions rather than import their overseas earnings. Apple, for example, noticeably takes up debt to fund their investments, despite having nearly 260 billion dollars in cash, aka available funds. If it wasn’t costing their company more, they, and many others, wouldn’t take on debt. But they do, which accentuates that it is less costly, perhaps because of low interest rates. Thus, the argument that freeing up funds for corporations’ use to hire new personnel and invest in the domestic economy is exceptionally flawed. If there is profit to be made, these corporations will have already borrowed the necessary money to invest.

Corporations need more than a tax-break or a one-time tax holiday, because companies overseas will continue to do work overseas that will require another tax holiday. What is needed is an ongoing tax policy that is favorable for business done overseas, but that has reasonable, competitive consequences for companies that decide to import their foreign profits to the domestic market. This is why a penalty rate is a better option than simple tax cuts, because otherwise we perpetuate a monetary cycle that will never, contrary to popular belief, trickle down any lower than the upper corporate echelon.

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