Freedom Line Blog

Regardless of today’s election outcome, here’s an encouraging headline buried deep on Page C 8 of this morning’s Wall Street Journal:  “Tax Relief Is Likely No Matter Who Wins.”

As we at CFIF have long emphasized, the U.S. continues to suffer the developed world’s highest corporate tax rate.  In addition to suffocating domestic growth and imposing needless tax complexity on American businesses, our outdated corporate tax code also explains why corporations are forced to relocate headquarters overseas in order to survive in an increasingly competitive global marketplace.  Speaker Paul Ryan has unsurprisingly offered admirable intellectual and political leadership in promoting reform, and the good news is that oven liberals like Barack Obama understand the need for cutting rates and reducing complexity.

Accordingly, it’s refreshing regardless of one’s political leanings to read the Journal’s take:

No matter the outcome of Tuesday’s election, American companies with substantial overseas earnings, and their investors, could emerge as big winners.  Corporate tax reform that would make it easier for U.S. firms to repatriate foreign earnings has emerged as a rare issue of bipartisan consensus in Washington.  Progress on this issue is possible no matter who controls the White House and Congress next year…  Under current law, American companies with overseas earnings pay no U.S. federal tax on these profits unless and until they repatriate the money, at which time they pay the relatively high corporate tax rate of 35%.  This creates a perverse incentive for U.S. companies to house money abroad rather than reinvest it at home…

Even in a divided-government scenario, for example, with Mrs. Clinton as President and a Republican-controlled Congress, it seems likely that companies can look forward to a one-time break on repatriated earnings and a lower tax rate going forward.”

And as the Journal notes, the positive effect would likely be substantial:

The last time there was such a repatriation tax holiday was in a law passed in 2004, and the effects were dramatic.  Companies brought home $299 billion of overseas earnings in 2005, up from $82 billion the previous year, according to the Bureau of Economic Analysis.”

Far preferable to a mere one-time repatriation tax holiday would be a permanent reduction in the corporate tax rate below the developed worldwide average around 20%, and removal of Byzantine complexity.  Regardless, the likelihood of tax reform whoever wins tonight offers welcome news as an oftentimes bleak election concludes.