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My Turn: Why the tax cuts will help our economy



For the Monitor
Friday, December 22, 2017

We must remember that President Donald Trump made a campaign promise to help American companies become more competitive globally so that they invest in plants, equipment and employees in the good old USA instead of growing the economies of foreign countries.

What a novel idea (to keep a campaign promise). This is how the president envisions helping the working people in America, by having them able to enjoy growing wages and better job security.

Growing up in New Jersey in the 1960s, there was a bridge across the Delaware River linking Trenton to Pennsylvania. On both side of that bridge were 10 foot tall neon letters that read, “Trenton Makes, the World Takes.” My parents were very proud of that sign and they taught me that we were a great country where working people could obtain the American Dream.

My mother worked at John A. Roebling Co., a very large steel mill that made wire rope. Mr. Roebling invented the wire rope process. This invention allowed the Brooklyn Bridge and many other suspension bridges to be built with American workers.

The president is trying to bring that dynamic back to America in this digital age. By lowering the corporate tax rate from 35 percent to 21 percent, American companies will be incentivized to invest in America instead of a foreign country. This rate is below the average of world industrial economies (23 percent) but higher than Ireland and China. By lowering the taxes on the over $2 trillion (that is trillion with a “T”) that is trapped in foreign countries, corporations will be able to bring those funds back to America. And going forward, by instituting a territorial system of taxation, double taxation will be eliminated so our companies will be taxed once in the country where the funds are earned. This will allow American companies to bring back their income earned in a foreign country to be reinvested here in America.

These are the primary goals of the tax reform act. However, there have to be changes in the tax code that will allow for paybacks of some of these tax reductions until the growth of our economy allows for the increase in total tax revenue. American Gross Domestic Product has grown over the years before 2008 in the 3 to 5 percent range. Under the “No Growth” policies of the Obama Administration of the previous eight years, we have averaged a growth rate in GDP of 1.8 percent.

This anemic growth rate has widened the income inequality gap because the artificially low interest rate has allowed the people with large amounts of investment dollars to invest in appreciating stocks and the real estate market while the working people get less than 1 percent interest at a safe rate for their savings. At a less than 2 percent GDP growth rate, corporations do not have to hire as many workers then if the economy was growing again. We need to end this policy of no economic growth because the federal government, for the last eight years, refused to offer America a comprehensive fiscal policy that would grow our economy. In that time corporations have completed the strategy of inversion to avoid the US. corporate tax rate.

Inversion is the ability of an American corporation to change its corporate address to another country that has a more favorable tax rate than the US rate. Most recently, Pfizer Corporation, one of our giant pharmaceutical companies, tried to invert and become an Irish company paying much lower corporate taxes.

Treasury Secretary Jack Lew, working under President Obama, was interviewed about inversions. Secretary Lew said we need to pass legislation to prevent American companies from employing this strategy. What he should have said was that we need a pro-growth fiscal tax policy that will encourage American corporations to stay and invest in America. But no, the Democrats want to tie the engines of job creation (American companies) up in knots. Our entire Congressional delegation voted against the tax plan out of fear of, “allowing the rich to get richer while the working people are not getting the benefits of this tax plan.”

This simply is not true. Other than the fact that corporations will invest in plant and equipment and hire workers in America, the average American worker will receive higher take home pay starting next month due to an increase in the standard tax deduction.

About 70 percent of taxpayers in America do not itemize their deductions but take the standard tax deduction. Sen. Shelly Moore Capito, R-W.Va., was recently interviewed about this issue. She indicated that about 80 percent of the people who file tax returns in West Virginia use the standard deduction. So, most of her citizens will receive a tax break from the GOP plan. I wonder if our New Hampshire Congressional delegation, who all voted against the tax plan, even knows what percentage of New Hampshire citizen use the standard deduction.

There have to be some paybacks in the short run to balance the tax deductions from this plan. There was an overwhelming disapproval for the Republican plan to institute a Border Adjustment Tax for taxing goods coming into our country. So the plan was changed to reduce the amounts that could be deducted on federal tax returns for state and local taxes (SALT) paid. This tax will be a tax increase for the people (who Democrats call the “rich”) in high tax states of which New Hampshire is not one.

The positive aspect of the “pay for” is that hopefully these high tax states will be more frugal with their budgets, like New Hampshire is, and be more competitive as a good place to live from that vantage point.

By our Congressional delegation voting against this tax plan, they voted to keep the taxpayers in low tax states (like New Hampshire) subsidizing the increased spending of the high tax states. By our delegation voting against this plan, they were more loyal to the agenda of the ideology of their congressional leaders, Sen. Charles Schumer D-N.Y., and Rep. Nancy Pelosi, D-Calif.

Their agenda is to do everything they can to prevent the president from being successful with his campaign promises. They are opposed to helping working people have the financial resources to provide for them and not be dependent on a government handout.

Our senators and representative were elected to represent the best interest of the citizens of New Hampshire, not the citizens of high tax states like New York and California.

(Joseph Mendola lives in Warner.)