US can gain edge if it slashes corporate taxes soon

In his recent speech before Congress, President Trump said, “My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone. At the same time, we will provide massive tax relief for the middle class.”

One of the big questions swirling around Washington’s corridors is whether comprehensive tax reform will be tackled this year.

{mosads}Currently, corporate tax rates in America are the most investment-discouraging in the industrialized world. America’s top rate of 35 percent is even higher than those of socialist-leaning countries within Europe. On the campaign trail, Donald Trump championed a plan that would reduce the rate to 15 percent, while a plan touted by House Republicans reduces the top tax rate to 20 percent.

What is certain is that reducing tax rates paid by small businesses and large corporations is a policy that will expand the American economy. Making the United States a more attractive place for investments of foreign capital will open the door to job creation in high-paying sectors like manufacturing, energy, biotechnology, information technology and many others.

If the United States can move quickly on substantive tax reform, it can vault past many other nations that are impeding their own economic growth by enacting horrible tax policy changes.

In Australia, the allure of short-term tax revenues is motivating liberal activists to call for an end to the decades old Petroleum Resource Rent Tax (PRRT), a tax arrangement under which companies are taxed only after their initial investment money is recovered. 

Oil and gas is one of the most highly taxed industries “Down Under”, and the PRRT was created to attract business investment/development of Australia’s huge natural gas reserves.  

Up to now, the policy arrangement has been a win-win for Australia. The PRRT arrangement has helped Australia attract more than AUD 200 billion in new gas projects. Australian governments have typically realized AUD 7.5 billion per year in tax revenues from the oil and gas industry, on average, over the past 10 years. At the same time, PRRT has helped companies to invest billions in projects that typically take 10 years to break even on costs. 

That is all about to change if liberal activists succeed in retrospectively shuttering the highly successful PRRT program. Energy investors will not be able to recover billions of dollars of start-up costs for exploration and development of natural gas projects.

At a time when Australia is poised to take the lead as the premier LNG exporter, this tax policy change would throw cold water on foreign and domestic investors who could easily lose the confidence and desire to invest in Australian energy projects. 

I spent some time in Australia recently and spoke with a number of leaders in the free market and economic liberty movement. They understood the importance of the industry and were concerned about the rumblings of left-wing activists pushing for punitive tax hikes that would harm that sector of the economy.

Another example of an opportunity comes from China, which is experiencing an exodus of capital investment for a variety of reasons. Some of that money is flowing to the United States, but with the right tax inducements in place, the amount could be much higher.

The Vancouver city government recently imposed a 15 percent “foreign buyer transfer tax” on real estate. The impact was nearly immediate, as sale prices took a nose dive and properties lingered longer on the market. Some Chinese investors turned to nearby Seattle, but most of the property investment went to other Canadian cities instead. 

Another reason why Washington policymakers would be wise to put tax reform on the front burner is that the global competition to attract foreign capital investments is intense. The United Kingdom, for example, dropped its corporate tax rate from 28 percent in 2010 to just 20 percent today.

The rate will fall to 19 percent in April and then to just 17 percent in 2020. Combined with other measures to encourage capital investment, the U.K. is well-positioned to power itself toward post-Brexit prosperity.

If American policymakers move with urgency to create a friendlier tax environment, they can seize the opportunity to drive untold billions of investment dollars to our shores and propel an American economic renaissance.

Ken Blackwell served as a domestic policy advisor to the Trump Presidential Transition Team. He is the former mayor of Cincinnati, former treasurer of Ohio and former secretary of state for Ohio.

The views expressed by contributors are their own and not the views of The Hill.