If You Want Economic Growth, Vote Republican, Says … Harvard Business School?

Economy: The latest annual report from the Harvard Business School on the state of U.S. competitiveness says political gridlock is getting in the way of strong economic growth. What it fails to mention is that Democrats are the ones blocking the pro-growth proposals the report advocates.

The latest HBS report paints a bleak but accurate picture of the current economy -- lackluster economic and productivity growth, an incredibly slow rate of job creation...

...no meaningful progress on the critical policy steps to restore U.S. competitiveness...

...Don't believe it? Look at the eight-point plan itself and ask yourself which party supports or opposes each:

Simplify the corporate tax code and lower the statutory rate. Move to a territorial tax system like all other leading nations. Ease immigration of highly skilled individuals. Aggressively address distortions and abuses in the international trading system. Improve logistics, communications and energy infrastructure. Simplify and streamline regulation. Create a sustainable federal budget, including reform of entitlements. Responsibly develop America's unconventional energy advantage.

...Trump's economic plan, in contrast, is far closer to what the HBS envisions...

He has called for streamlining regulation, and while his anti-trade rhetoric is worrisome, he at least has promised to get tough on countries that cheat on trade. Where Trump falls short is on immigration and entitlements.

The HBS is right that the U.S. economy is suffering from federal policies that impede growth and harm U.S. competitiveness. But attacking both political parties as if they share equally in the blame is unfair and unproductive.

A very happy Friday to everyone --we're still rich! Both metals and stocks are hanging on, yesterday's stocks were up a % in mixed volume and metals are still in recent ranges (gold, silver at $1,313.60, $18.98). Future traders (they got crystal balls ya know) foresee meatals maybe off and stocks maybe up today, but we already knew that.

Anyway, these should be fun:

8:30 AM CPI
8:30 AM Core CPI
10:00 AM Mich Sentiment
4:00 PM Net Long-Term TIC Flows

Current econ (?) threads:

--and some of these need to start threads:

The Main Source of Stock Market Stress Ahead - Rob Isbitts, MarketWatch
Mainstream Economics Is Trapped In a Time Warp - Jeffrey Snider, RCM
Lawyers Will Be Beneficiaries of Clinton's Tax Plan - James Stewart, NYT
Trump's Tax Plan Is Good. How It Could Be Better - Editorial, Investor's
I'm an Economist, and I Refuse to Vote in November - Bryan Caplan, FEE

More detail on territorial corp taxation vs current practice:

Ten Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings | Tax Foundation

http://taxfoundation.org/article/ten-reasons-us-should-move-territorial-system-taxing-foreign-earnings

Tax Foundation Special Report No. 191

Introduction

There is a growing debate in Washington over how U.S. companies should be taxed on the profits they earn abroad. The outcome of this debate will determine how well U.S. workers and companies can compete in the ever-changing global economy.

Currently, the U.S. has a worldwide tax system, which means business income is taxed at the U.S. rate no matter where it is earned—at home or abroad. However, companies can defer paying U.S. tax on active foreign income until it is brought home.

In order to prevent companies from paying taxes twice on the same dollar of income—once to the host country and a second time to the U.S.—our tax code gives companies a credit on their U.S. tax return for those foreign taxes. After paying taxes to the host countries, companies have two choices for the residual profits: bring them back to the U.S. or reinvest them in their foreign operations.

If they chose to bring the profits back home, they must pay the difference between the amount of tax paid to the foreign government and what would be owed under the U.S. rate of 35 percent for most large firms. In other words, if a company wanted to bring home $100 in profits from Great Britain, it would first pay the British tax rate of 26 percent (or $26) and then pay an additional $9 to the U.S. to bring the total rate of tax to 35 percent.

Instead, the company can reinvest those profits in its foreign operations and defer paying the additional U.S. tax indefinitely as long as the profits are working actively abroad. Critics of this process, known as “deferral,” say that the system encourages companies to keep their profits offshore and avoid paying U.S. taxes on that income. Defenders of deferral say that it simply recognizes the well established principle that income should not be taxed until it is realized (or repatriated), and it puts U.S. firms on a level playing field with their foreign competitors who don’t operate under a worldwide tax system. Others say our current international tax regime needs to be replaced with a territorial system that more closely resembles those of most other capitalist nations.

As U.S. lawmakers consider how to move forward, they face three distinct choices:

1. Maintain the current deferral system and international tax rules for taxing the foreign earnings of U.S. multinationals.

2. Eliminate deferral and move toward a pure worldwide system of taxation.

3. Move toward a territorial system and tax only those profits earned within the U.S. borders.

Based on the tax system changes being undertaken by our major trading partners, as well as the trends in economic research, lawmakers would do well to consider the following 10 reasons why our current international tax rules should be replaced with a territorial or exemption regime that exempts most foreign profits from U.S. tax.

Ten Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings

1. Parity. The U.S. system must be aligned with our global trading partners.

2. The Experiences of Japan and Great Britain are lessons for the U.S.

3. The premise of the worldwide tax system - capital export neutrality (CEN) - is obsolete when subsidiaries have access to global capital markets and can self-fund their expansion with retained earnings.

4. The worldwide tax system violates the benefit principle of taxation.

5. The U.S. maintains a territorial tax system for foreign-owned companies but a worldwide system for U.S. companies. Moving to a full territorial system will level the playing field.

6. The compliance cost of the current system is excessively high relative to companies’ foreign activities and the revenues raised from taxing foreign-source income.

7. Our current system traps capital abroad - the “lockout” effect.

8. Our high corporate tax rate and worldwide system makes it cheaper for companies to take on debt rather than use their own profits to fund their growth.

9. The current system dissuades global companies from headquartering in the U.S.

10. Eliminating deferral nearly killed the U.S. shipping industry.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.