Make products in the US, bring in more tax revenue

Our income tax system is a bloated, complicated mess. With lower corporate tax rates, our trading partners are eating our lunch and taking away our jobs.

President Trump has called for cutting the corporate tax to 15 percent across the board. This massive tax cut for corporations will decimate revenues and is not necessary to keep U.S. firms from moving offshore. Further, it is not fair to have corporations pay a lower rate than individuals. 

{mosads}Many small businesses are not incorporated and pay tax at the individual tax rate. If corporations are people, as the Supreme Court has ruled, and entitled to constitutional rights, they should not be treated better than humans. 

Most of our pharmaceutical manufacturers, including Pfizer, the world’s largest drugmaker, have set up shop in Ireland to avoid paying U.S. taxes. This is solely because Ireland charges a corporate tax rate of only 12.5 percent. 

European countries have an average corporate income tax of 23 percent. If we cut taxes for manufacturers, these companies will come back home.

Basic Tax Principles

In order to get bipartisan support for tax reform, the new taxes must be equitable and meet the following principles:

1. Individuals should not pay a higher rate than corporations;
2. U.S. corporations should not have incentives to move abroad;
3. Overseas funds held by U.S. companies should be brought home; and
4. Manufacturing in the U.S. should be encouraged.

I propose a 28-percent corporate tax rate, with a 0-percent tax rate for manufacturing companies, and a one-time amnesty rate to repatriate earnings held offshore at a 14-percent rate. U.S. corporations are sitting on trillions of U.S. dollars held in offshore accounts. I also propose a top personal income tax rate of the same 28 percent: Individuals should not pay a higher rate than corporations.

According to Bloomberg News, Microsoft, Apple, Google and five other tech firms now account for more than one-fifth of the $2.2 trillion in profits that U.S. companies are holding overseas. Under my tax proposal, companies could bring home this $2.2 trillion pie, invest this money in new factories and businesses, and the U.S. Treasury would reap a $300-billion bonus. 

Real Corporate Tax Rate

In 2010, the last time the Government Accountability Office measured the real corporate tax rate, U.S. companies paid an average effective federal tax rate of 12.6 percent. That rate compares with the nominal corporate federal tax rate of 35 percent. 

Corporate tax accountants appear to have done their jobs well in exploiting the loopholes in our current tax code. Amazingly, General Electric, despite billions of dollars in profits, is noteworthy for rarely paying any income tax at all. 

Corporations now evade U.S. taxes by issuing executive stock options, using the oil depletion allowance, in addition to taking advantage of capital gains rates and other loopholes. Many of Silicon Valley’s newest star companies are able to shelter a large portion of their profits as a result of using executive stock options.

Citizens for Tax Justice estimated a dozen technology companies, including Amazon, Twitter, LinkedIn and Priceline, “stand to eliminate all income taxes on the next $11.4 billion they earn, giving these companies $4 billion in tax cuts.”

Amazon’s combined federal and state effective tax rate was just 9.4 percent. Without this ridiculous stock option tax break, the combined tax rate would have been 40.4 percent.

Overall, the corporate taxes now contribute only about 10 percent of total federal revenues. Under my proposal, corporations would pay more money to the federal treasury and thus create more jobs. On total federal tax revenues of $3 trillion a year, corporations now contribute only about $300 billion, only a 10th of total revenues. Individual citizens currently pay the bulk of federal tax revenues. 

If we lower the corporate tax rate to 28 percent and eliminate all loopholes (no investment tax credits, no oil depletion allowance, etc.,) we can institute a tax on manufacturers of zero percent. This would be based on the amount of U.S. content in the products manufactured.

This zero tax rate would apply only to products made with 100 percent U.S. content. For example, if a manufacturer assembles a product in the United States with 50 percent U.S. content, the manufacturer would pay an income tax of 50 percent of the 28-percent rate, or 14 percent. However, if the manufacturer has 100 percent U.S. content, its tax rate would be zero.

Eliminate Loopholes and Target Incentives

Manufacturing is the primary area where the United States has lost jobs over the past 20 years. Manufacturing also creates more jobs than other businesses, because it creates jobs with suppliers and service providers necessary to support the manufacturing process, as well as buildings and equipment necessary to manufacture products.

If we lower the corporate tax rate to 28 percent and eliminate all loopholes (no investment tax credits, no oil depletion allowance, etc.,) we can institute a tax on manufacturers of zero percent. This would be based on the amount of U.S. content in the products manufactured.

This new manufacturing tax rate would serve to incentivize manufacturers to make their items here in the United States. It would help create millions of jobs in the U.S. by bringing manufacturing back to New York, Chicago, California, Ohio, Michigan and every other state. It will also raise wages and grow the economy.

Joel Joseph is the chairman of the Made in the USA Foundation, which is dedicated to promoting products manufactured in the U.S., as well as products assembled in the U.S.