Le conseguenze internazionali della riforma fiscale statunitense

Sep 27, 2017 Martin Feldstein

CAMBRIDGE – Nei prossimi sei mesi il Congresso degli Stati Uniti potrebbe attuare una riforma fiscale. Anche se le nuove regole saranno applicate solo ai contribuenti americani, esse avranno conseguenze importanti per le società e i mercati in tutto il mondo.

I cambiamenti più significativi si applicheranno alle aziende statunitensi piuttosto che ai singoli contribuenti. Di queste riforme, l’unica ad avere l’impatto internazionale più evidente e diretto sarà il cambiamento della tassazione sulle controllate estere delle società statunitensi.

L’attuale legge vigente negli Usa è unica tra tutte le maggiori economie avanzate. Prendiamo ad esempio una controllata di un’azienda degli Stati Uniti che registra utili in Irlanda. Tale controllata paga l’imposta societaria irlandese a un’aliquota del 12%. È quindi libera di reinvestire l’utile netto in Irlanda in strumenti finanziari o in attività operative ovunque tranne che negli Usa.

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Martin Feldstein

Writing for PS since 2008
130 Commentaries

Martin Feldstein was Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research. He chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. In 2006, he was appointed to President Bush's Foreign Intelligence Advisory Board, and, in 2009, was appointed to President Obama's Economic Recovery Advisory Board. He was also on the board of directors of the Council on Foreign Relations, the Trilateral Commission, and the Group of 30, a non-profit, international body that seeks greater understanding of global economic issues.

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Bala Subramanian Oct 3, 2017

Would it not better instead of giving such direct tax cuts to corporations, to have those reduced tax amounts applied directly to national deficit/national debt reductions? Such a redirection would ensure that the anticipated fiscal stimulus will benefit the entire nation and the citizenry by making the USA solvent and its currency trust able for the rest of the world to continue its usage as the reserve currency when other currencies are gaining an edge.
- Andrew (Andy) Crow Oct 3, 2017
  
  You seem to be describing the current situation viva vis corporation tax. The Feds collect it and spend it for the benefit of society (the current priority may be debt reduction or spending on infrastructure or whatever, and the priority will change over time). That's the theory of taxation.
  
  It doesn't work very well does it? The failure seems to be not so much in the quantity of tax collected as in what the Feds chose to spend it on and how much they keep for themselves and their cronies rather than feeding it back to the productive economy.
  
  Sensible discussion of these issues (albeit on the UK side of the pond, but the principles remain the same ) can be found on: http://www.taxresearch.org.uk/Blog/
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Andrew (Andy) Crow Oct 2, 2017

I guess, having waded through this and the following comments, that what it amounts to is that there is still a body of influential opinion that hasn't yet noticed that 'trickle down' doesn't happen, but still benefits greatly from pretending it does.

I've said before and will say repeatedly until someone persuades me otherwise: The eventual default currency of untrammeled free markets is violence.
- Bala Subramanian Oct 3, 2017
  
  Wouldn't one way to avoid violence be instead of giving such direct tax cuts to corporations, to have those reduced tax amounts applied directly to national deficit/national debt reductions? Such a redirection would ensure that the anticipated fiscal stimulus will benefit the entire nation and the citizenry by making the USA solvent and its currency trust able for the rest of the world to continue its usage as the reserve currency when other currencies are gaining an edge.
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simon noble Oct 1, 2017

Putting politics to one side, there is a common sense approach. First put the US on the same footing as the rest on international taxation. Over time money will come back and recycle in the system one way or another. It might produce a short term surge that would help offset the effect of unwinding QE and raising rates, which would be nice.
Second put the US in the lower middle end of corporate tax rates. Be more ambitious then Feldman and work to simplify the code and eliminate deductions so that the net tax rate is close to the marginal rate. Make a level playing field for big and small business. Think about copying some of the German system to help family companies pass down generations (the source of the mittelstand resilience).
Third, cut personal tax rates, above at the lower end, in a similar fashion, sharply increase minimum wage and make individuals fund their social security accounts (health, pension, unemployment). At that point the US will look a far better place to invest and work.
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Fred Carstensen Oct 1, 2017

A NBER analysis of the repatriation provisions under Bush II concluded: "Increased
repatriations in response to the HIA had small negative, but insignificant, effects on domestic employment and R&D expenditures."
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Fred Carstensen Oct 1, 2017

Feldstein simply ignores two major considerations: 1) American companies are already awash in cash and cash equivalents in the U.S. They have no need to repatriate profits to make investments in America; they already have the resources to do so. 2) Businesses don't just willy-nilly invest in expanded capacity or enhanced R&D because they have more money. Businesses are very alert to what future stream of revenue/profits such investments will deliver; they have sophisticated internal metrics that determine whether an investment will pass the "hurdle rate" or the mandated "internal rate of return." The most important driver is the rate of growth in aggregate demand--which is of course the result of growing real income. America has seen pathetically little growth in real incomes and there is little prospect of significant future growth, given the absence of any significant pro-growth initiatives on the Trump agenda (arguably, on balance they are anti-growth, slashing public sector basic research, reducing federal investment in infrastructure, anti-immigrant policies, etc.). The reality that Feldstein utterly ignores there is little reason for American companies to invest in America, regardless of the tax environment.
- simon noble Oct 1, 2017
  
  If you put the US on a par with the OECD countries then companies will tend to choose domestic over foreign locations for production assuming other costs are similar. This wont be revolutionary but currently the US is clearly encouraging the opposite.
  Reversing that trend has to be logical. It would be even better to follow Ireland's lead and eliminate most deductions so that the effective rate is close to the nominal. That would also be far fairer to smaller companies who would mist likely benefit from a lower overall rate.
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Greg Kramer Oct 1, 2017

I have to agree with most of the commenters. Dr. Feldstein hasn't changed since his Reagan days as the chief economic advisor as to tax cuts and hoped for reinvestment of tax cuts into the U.S. economy. He even gleefully opines that the corporate tax cut will only be at the 25% rate in keeping with his deficit hawk stance, also in his Reagan days.
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Kurt Bayer Oct 1, 2017

The least problem with Feldstein's analysis is that the nominal corporate income tax rate in Ireland is 12.5%, not 12%. More problematic is his (propagandistic) assumption that more investment into the real economy is likely to follow repatriation of profits and that this will partially pay for the reduction in the rate (Laffer once more). Even more annoying is the positive spin that the proposed US reduction would promote "Tax reform" in other countries. In reality, it might once more accelerate the race to the bottom in corporate rates, because countries will again vie to attract domestic and foreign investment via tax rates. On top of it all, we know that nominal tax rates are only part of the story, deductions, patent boxes, profit shifting, etc. all reduce the actual tax paid.
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David Abuchar Sep 28, 2017

If most countries have a territorial tax system what would be the advantages for foreign companies of having their HQ in the US?
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cheat truth Sep 28, 2017

Roach's analysis made some points, but more mis-points. The normalization of Fed's policy, well what is the normal Fed Policy? Roach seems to criticise the rate policy for its long, too long focusing of inflation and the mislocation of the expanded capital inflow through QE. But these are not primary problems. The big picture I think Roach misses is that the Fed overreaches. By its design the Fed should focus first and formost on rates and money supply, and not on industrial and financial policy. That's the job of government. Fed cannot direct the capital to real economy, and usually the government does not do that directly either, but the free market. In a crisis the free market(!) fails to do so. And here must come the government first and primary. That's the whole point. Unfortunately the government and with it the most leading western economists understand falsfully the spirit of free market and chose to keep the hands in pocket. Ah, what a irony.
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j. von Hettlingen Sep 28, 2017

Martin Feldstein says Trump's tax reform in favour of a lower corporate rate would encourage American multinationals to repatriate an estimated "$2.5 trillion" stashed overseas. They currently have to pay 35% on corporate profits - one of the "highest among all developed countries." It explains why these companies are waiting eagerly for details on Trump’s promise to slash the tax rate on their offshore profits.
The author says this could have an impact on "capital flows" across the globe, triggering a race among other OECD countries to "reduce their corporate tax rates to improve their relative attractiveness to internationally mobile capital." In recent decades rates have been plummeting all over the world, thanks to a race to the bottom on corporate taxation.
Trump has delved into George W. Bush's 2004 advisory panel on federal tax reform for inspiration. Multinationals had lobbied hard for tax cuts, which were championed by the Bush administration and had bipartisan support. They promised that the repatriated billions would add more than 500,000 jobs in the US over the next two years, as companies paid down debt and engaged in more capital spending, acquisitions, and R&D.
Around $299 billion in offshore profits did flow back to the US in 2005 - almost five times more than the previous five years. But companies thought they had a better way to use the money. They started to buy back their own shares or reward chief executives etc. Repatriations did not lead to an increase in domestic investment, employment or R.&D. This business ethos - putting corporate interests ahead of workers’ welfare - had sparked outrage,
At the same time the Bush adminstration also sought to clamp down on foreign companies with US subsidiaries which moved funds to their parents via countries with favourable tax treaties, stoking the fear that the measure could deter firms from investing in the US. They paid little or no tax but the House of Representatives voted to impose a 30% tax on interest payments and other capital flows between US operating companies and their parent businesses.
Trump's promise of addressing the plight of working class Americans and bringing jobs back may just be lip service. That a tax cut for the wealthy would be good for them, is nonsense, because only businesses and the rich will benefit from this largesse, and it won't propel economic growth and lift wages. Given the size of the debt in the US, even lot of conservatives are sceptical of his tax reform right now. And there's a division within the GOP, pitting those who want to reform the system, get rid of loopholes and lower the rates, against others who want to do tax cuts.
The author says, a "large share of.. foreign subsidiaries’ future profits, which would be retained abroad under current law, are likely to be returned to the US, reducing investment in Europe and Asia." It remains to be seen whether a "lower corporate tax rate and the shift to a territorial system would increase the flow of capital to investment in US corporations from abroad."
Not everybody is convinced about higher productivity and GDP, and an increase in tax revenue as a result of a lower corporate tax rate. So far - in theory - corporate earnings should be taxed at 35%. But in reality they are not taxed at all unless they are brought back to the US. Would Trump bring his profits back himself if he had to pay a lower rate, while paying nothing if he kept them abroad?
- simon noble Oct 1, 2017
  
  Ultimately you want to use the money you earn, either for dividends or more investment. Avoiding tax by keeping money offshore fine but one day there is simply too much in the wrong place. If you remove the incentive to keep it offshore you will reverse the flow. No other country suffers the huge accumulation of profits offshore - your Trump logic is flawed.
  Just as important, taxing corporation is a mugs game. They produce jobs and income that pays income and sales tax. Lower corporate taxes and relatively higher personal taxes is far smarter.
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Paul Daley Sep 27, 2017

Feldstein is simply arguing for the US to adopt a bad practice, that allows countries to bid for investments on the basis of tax incentives. It certainly wouldn't hurt to harmonize corporate taxes, as we have tariffs on trade. But the practices we adopt shouldn't be the worst on offer.
- Andrew (Andy) Crow Oct 3, 2017
  
  Paul Daley,
  
  Yep. Get it wrong and the inevitable result is 'a race to the bottom' game of 'beggar my neighbour'. It's the other face of the trade tariff coin.
  
  A globalised economy requires coordinated globalised agreements on taxation. I don't see that coming soon. Do you?
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