By James Gorrie
For the gaggle of Democratic challengers in the 2020 presidential campaign, nothing is more inconvenient than President Donald Trump’s tax policies delivering on their promise. That’s certainly the case with the president’s corporate tax cuts.
Dropping corporate tax rates from 35 percent on profits earned offshore to a one-time rate of 15.5 percent on cash and 8 percent on additional assets has led to a windfall of money entering the U.S. economy.
According to the latest data from the U.S. Department of Commerce, over $1 trillion in corporate cash held abroad has been returned to the United States—just since late 2017. Going forward, more money will most likely be coming back to the United States.
That’s great news for the economy, of course, and in more ways than one. Trump’s permanent corporate tax cuts encourage corporations to bring their money back to the United States, which is a very big deal. That money is taxed by both federal and state governments where applicable, and everybody wins.
The Investment Effect
But there’s an even bigger effect of the repatriation than just tax revenues. By making the tax rate competitive with other nations, and by making it permanent, corporations are incentivized to not send their money abroad in the first place. When corporations keep money in the United States, they’re more likely to invest it here, rather than abroad.
That’s important because when corporate money is held abroad, the countries where it’s held want that money to stay there. They offer both incentives and requirements—such as lower tax rates and rules that require foreign corporations to hold substantial capital reserves—to keep the money away from the United States.
On the flip side, the $1 trillion in repatriated money is actually less than the $4 trillion that Trump promised. Of course, more repatriated money is expected. The flow back to the United States is somewhat less and slower for some very good reasons.
For example, U.S. corporations are keeping some of their cash abroad longer because of local regulations requiring foreign companies to hold a specific level of capital reserves. Also, U.S. companies that operate in foreign markets will need cash on hand for investments, operating costs, and other financial commitments. In other words, not all of the money will be rushing back anytime soon. Some of it is committed to those foreign markets.
That’s one of the effects that high corporate tax rates, such as those imposed by the previous administration, have had on U.S. companies. Former President Barack Obama’s ridiculous tax policies and overregulation forced them to move more money offshore in the first place.
As a result, over the past several years, U.S. companies have made more capital investment in foreign markets, foreign production, and distribution, and less in the United States, than they otherwise would have.
Making America Business-Friendly Again
But that’s changing.
Money and companies are returning to the United States. It’s important to understand why. It’s not just Trump’s very competitive and permanent corporate tax rate cuts. Tax rates are just one side of the business-friendly coin.
The other side is regulation.
In fact, regulation levels are as big of a factor as are tax rates. Since taking office, Trump has cut one-third of costly business regulations put in place during the horrendous, business-hating, “you didn’t build that” Obama administration.
Contrary to his predecessor, Trump’s message to U.S. multinational companies is loud and clear: “Not only will you keep more of your money if you keep it in America, but now it’s easier than ever to invest here, too.”
Of course, Trump’s business-friendly regulatory environment has resulted in a rapid expansion of business and manufacturing activity. That’s driven the unemployment levels to 50-year lows and contributed to rising incomes and greater consumer demand.
Absurdities on the Left
None of this is good news for the leftists running against Trump. In fact, it puts them in a very compromised position.
That’s because corporations remain the favorite bête noir of most of the Democratic presidential candidates. Railing against corporate misbehavior, whether it’s pollution, the mistreatment of workers, customer abuse, price gouging, or other real and imagined offenses, has gotten Democratic politicians elected to office for generations.
The party narrative is almost always some version of “corporations are greedy, inhuman organizations that only care about profits, don’t ya know.” And to be sure, sometimes corporations do misbehave; they pollute, try to save on labor costs, and yes, avoid taxes when and where they can. And, yes, corporations are profit-driven. All businesses are.
But without profits, small, medium, and large companies, both domestic and global, would all cease to exist. They would also cease to hire people. The economy would stagnate or revert to recession. That, in a nutshell, tells the story of the entire eight years of the Obama administration.
That’s why Democratic presidential candidates beating up Trump’s corporate tax rate cuts will be a hard sell to most of the working electorate. The American people know what they’re earning now, compared to the Obama years.
But even so, the left’s message is always more-or-less the same: “Corporations are evil and only Democrats can save you from them.” It’s a simplistic ploy that, sadly, works for some of electorate all of the time. The problem is that class warfare and identity politics don’t expand the economy; only business-friendly policies do that.
In fact, the anti-corporate, anti-profit stance of all of the candidates, from Sen. Bernie Sanders to Tom Steyer and Michael Bloomberg, and even Sen. Elizabeth Warren and entrepreneur Andrew Yang, is a big problem, since they’re all millionaires and billionaires. Pete Buttigieg isn’t a millionaire, but most certainly wants to be.
That’s what makes their criticism of the most successful U.S. economy since the Nixon administration so absurd and downright hypocritical. Big profits and corporate wealth are returning to the country by the trillions of dollars. Because of these and other Trump policies, more Americans are working and earning more than they have in generations.
That, in itself, is so very inconvenient for the Democratic candidates. How to convince more Americans working and earning more that things are horrible in America?
One would think that it would be difficult for every leftist running for office in 2020 to keep a straight face as they advocate for boosting both corporate and individual tax rates and expanding business-killing regulations.
But they’ll manage somehow.
James Gorrie is a writer and speaker based in Southern California. He is the author of “The China Crisis.”