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Memories of the 28th Century

Restoring the U.S. Economy

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One day recently I read an article in The Economist (link below) on how the U.S.A. loses companies because of the horrible tax policies, and I read Comments by one of the people running for President who advocated that same problems that the article had pointed out. The article in the Economist summed up the problem quite nicely. Corporate income taxes in the U.S. are set up so that itís cheaper and easier to move oneís corporation to another country.

There are two major problems with corporate income taxes: high rates and extraterritoriality. The 39% tax rate is higher than nearly all of the rest of the world, and by itself that is a good reason for some corporations to leave. But the U.S. taxes worldwide income, while other countries just tax what is made inside their country; that is the real killer, and the legal principal is dubious.

The high rates on corporate income donít make sense and are inequitable. If corporations are persons before the law, then their income should be treated as any personís income would be treated, but thatís not how is is being done. The article provides the example of Burger King, which bought Canadaís Tim Hortonís and moved its domicile to Canada, where the corporate income tax rate is only 26%, and Canada only taxes income made in Canada. Before the move any profits made in Canada would have been taxed at 26% in Canada, and when the profits were brought home to the U.S.A. those profits would be taxed at 39% with a credit for the amount of tax paid in Canada. I donít know how much money Burger King makes where, but if they make a billion in Canada, then they are saving $130 million by moving there.

There are many other corporations that have changed domicile for tax reasons, and that is detrimental to the economy of the U.S.A. It would be much nicer, if the U.S. were to make the income tax flat with a single rate for everyone and a hefty basic exemption, and corporations should be taxed at the same rate as individuals, and all income should be treated the same. A rate of twenty percent with the first $30,000 exempted would be fine for all individuals, and treating all income the same would result in people with extremely high incomes paying more in taxes. Having corporations pay the same rate would result in more corporations paying more taxes, because there wouldnít be any exemptions or deductions or special treatments for certain income any more. There is only one way to find out how much income this tax would pull in, because there are so many variables in how income is handled, but this tax procedure probably would bring in more revenue than the present income tax system.

To bring companies back to the U.S.A. we will have to make the regulatory atmosphere less onerous to business. The environmental regulations and labor regulations are excessive, and in many cases there are multiple rules for the same things, and the rules are not the same. There are good reasons for many of the environmental regulations, but there are some rules that are based on opinion rather than science, and the recent regulations of CO2 are among those. It is reasonable to forbid businesses to put anything into the environment that might be harmful, but we have to careful what is defined as harmful.

The regulations regarding employees are excessive, and they shouldn't be federal regulations, except for that small fraction of the labor force that are employed in more than one state, mostly transpiration personnel, truck drivers, etc. The states adequately handle employment issues, and some of the issues are rather local, which is why minimum wages vary from state to state. The idea that the minimum wage should be raised has been put forward, but that is a mistaken idea. It would be much better to bring back jobs that were moved to other countries because the regulations and taxes in the U.S.A. are too high for corporations to be able to make money on products made here. We should regard the minimum wage as a minimal amount necessary to show that employers are not defrauding employees by not paying them. If worker find that amount too low, then they should find jobs that pay more. But the minimum wage is one of many reasons why corporations move production to other countries; we should find all of those reasons and eliminate as many as possible.

Another way that wages have been changed over time has been through inflation. The Federal Reserve has had a policy of having an average inflation rate of about three percent per year. That rate allows the Fed to pay back bonds with dollars that are worth much less. That's fine for the Fed, but it destroys the value of employee wages over time. We'll have top do something about that.

So think about me for president in 2016. I'm not pushing now, because we have more than a year until the election.