President Trump’s Tax Plan Could Backfire
These words from U.S. President Donald Trump have been echoing through national and international news ever since the launch of his campaign. However, the President’s recently signed tax bill could do just the opposite. Experts predict that President Trump’s new tax initiatives may prompt American companies to open more production sites on foreign soil in pursuit of higher profits.
Much to the surprise of avid Trump supporters who expected Trump to valiantly adhere to his initial promises, the new law calls for American companies’ overseas subsidiaries to face taxes that are around half as much as those for their domestic counterparts.
Reed College Economist Kimberly Clausing sums it up quite succinctly: “It’s sort of an American-last tax policy…..We are basically saying that if you earn in the U.S., you pay X, and if you earn abroad, you pay X divided by two.”
The Trump administration argued that by moving to a method known as the territorial system, jobs and companies would return to the US. Under the territorial system, companies pay taxes on foreign earnings only to foreign nations. Hence, such companies have no financial obligations to the US.
Companies will not have to pay US taxes on any profit they earn from plants and other capital located abroad, provided that those profits are 10% or less than the value of total investments.
This system may actually serve as an incentive for more companies to shift from domestic sites to overseas.