Proposal:
Given the current position of the US, amnesty for foreign income is a better approach than the imposition of trade tariffs. Further, taxation of foreign income is a bad idea for countries in general.
Brief Analysis:
A lot of discussion in the news right now revolves around the US trade deficit; however, the concerns around import/export imbalances usually revolves around the outflow of capital from a country. For the US, one of the biggest causes of this is that the US taxes foreign income. In all honesty, it is hard to justify this policy. While income made at home is dependent on the construction of public infrastructure and public investment in educating potential workforces, foreign income is not as dependent on this.
One can make an argument that foreign income is dependent on stability and peace in the world and the US spends a lot of money on it's military to try to achieve this goal; however, this is a bit of a stretch when considering imports that originate from historically low conflict zones like Canada or even Europe in recent history. Furthermore, a large reason why the US tries to maintain peace around the world is for it's own moral convictions coupled with a desire to limit the number of refugees looking for a new home and because it wants to limit terrorist attacks from troubled regions.
Removing the foreign income tax policies would incentivize more money to be brought home. If that money was then used to buy something abroad, it would be no different than what happens today where money is held in subsidiaries. However, if the money was brought home and used to pay higher wages, or even just pay investors, there is a potential for a gain for our economy without any new downside.
We've been holding foreign income hostage to the threat of taxes for far too long. Allowing money from foreign income -- excluding investments -- would be beneficial for the US overall. With investments, we need to be cautious so as to not incentivize all investment capital to move abroad to avoid capital gains taxes. However, we still need to allow foreign income used for foreign investment to come home in a tax free manor. In so doing, we achieve a better incentive structure compared to today where companies just keep money abroad in foreign subsidies.
Related Links:
- Links on the US trade deficit not being as dramatic as we think it is:
- https://www.bloomberg.com/view/articles/2018-04-17/u-s-trade-deficit-does-not-reflect-subsidiaries-in-china
- Excellent graphs to help visualize the understanding gap: http://markets.businessinsider.com/news/stocks/china-isnt-killing-the-us-in-trade-by-as-much-as-we-think-2018-3-1019598872
Given the current position of the US, amnesty for foreign income is a better approach than the imposition of trade tariffs. Further, taxation of foreign income is a bad idea for countries in general.
Brief Analysis:
A lot of discussion in the news right now revolves around the US trade deficit; however, the concerns around import/export imbalances usually revolves around the outflow of capital from a country. For the US, one of the biggest causes of this is that the US taxes foreign income. In all honesty, it is hard to justify this policy. While income made at home is dependent on the construction of public infrastructure and public investment in educating potential workforces, foreign income is not as dependent on this.
One can make an argument that foreign income is dependent on stability and peace in the world and the US spends a lot of money on it's military to try to achieve this goal; however, this is a bit of a stretch when considering imports that originate from historically low conflict zones like Canada or even Europe in recent history. Furthermore, a large reason why the US tries to maintain peace around the world is for it's own moral convictions coupled with a desire to limit the number of refugees looking for a new home and because it wants to limit terrorist attacks from troubled regions.
Removing the foreign income tax policies would incentivize more money to be brought home. If that money was then used to buy something abroad, it would be no different than what happens today where money is held in subsidiaries. However, if the money was brought home and used to pay higher wages, or even just pay investors, there is a potential for a gain for our economy without any new downside.
We've been holding foreign income hostage to the threat of taxes for far too long. Allowing money from foreign income -- excluding investments -- would be beneficial for the US overall. With investments, we need to be cautious so as to not incentivize all investment capital to move abroad to avoid capital gains taxes. However, we still need to allow foreign income used for foreign investment to come home in a tax free manor. In so doing, we achieve a better incentive structure compared to today where companies just keep money abroad in foreign subsidies.
Related Links:
- Links on the US trade deficit not being as dramatic as we think it is:
- https://www.bloomberg.com/view/articles/2018-04-17/u-s-trade-deficit-does-not-reflect-subsidiaries-in-china
- Excellent graphs to help visualize the understanding gap: http://markets.businessinsider.com/news/stocks/china-isnt-killing-the-us-in-trade-by-as-much-as-we-think-2018-3-1019598872
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