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Trumponomics as a viable economic plan?

Donald J. Trump… The Hollow, The Pompous, The Taunting Peddler Aka The 45th President of The United States of America. A man continuously embroiled in controversies.

Disclaimer

Now let me make it clear, I do not condone any of Trump’s words or actions but for a while I, like many other, non-linear thinking individuals believed that Mr. Trump could have offered an alternative style of politics. Primarily his approach to economics due to his given business acumen and sound recovery from bankruptcy.

The American Dilemma

At the moment, America’s debit deficit stands at around $21 trillion which is primarily owed by foreign investors, China and Japan and U.S. Social Security Trust Funds. But, bankruptcy is music to Trump’s ear, as over the years Trump had to declare several of his own business projects bankrupt. He like any other sane business individual was able to renegotiate his debts and afterwards bring those business out
of debt.

How? Well there is a different between filing for chapter 11 bankruptcy and filing for other chaptered bankruptcy. This is sound decision making. Could Trump possibly benefit America by being able to influence some similar ideas?

The Reforms

Under Trump’s administration; the US economy should be surging much further than it stands at the moment. Trump’s Republican ran US Senate and House of Representatives passed the Tax Cut and Jobs Act effectively lowering corporate taxes to 21% and reforming regulatory power, which would not only benefit major corporations but also empower small-medium-enterprises (SME’s).

Pardeep’s POV

I am aware that corporation tax is very sensitive topic and I am not condoning that every country should follow my thought. However, America is a capitalistic-centred country in comparison to our 1/3 Socialist, 1/3 Neo-Liberal, and 1/3 Free Market economy.

The reduction of corporation tax in America should prove to produce more revenue for American companies. The benefit of increased revenue would trickle-down and be reflected seeing an increase in available jobs, better employee incentives, and much more. The proposed reforms will truly help to increase America’s annual GDP and thus give strong indication to the world’s economy.

America’s Corporate Dilemma

Typically, all companies pay taxes to the country in which their money is being made. But, as always there is an anomaly to every rule and that anomaly is in America. America is a unique country who taxes based on citizenship. So If you are an American who is living and working abroad then you would still owe taxes back to the USA.

This has driven companies like Apple to retaliate and leave their money in a foreign country. The money goes into a subsidiary in Ireland that is registered as legally separate but it is truly and international bank account.

The money that Apple makes in the US (about 30% of all revenue) they pay fewer taxes on it by registering that they make less money on record by patenting all their products. Apple then gives their patents to the Irish subsidiary and leases them back to Apple for an undisclosed fee. So when Apple earns money in the US, Apple taps at the IRS shoulders and declares that this is not profit as they owe the money to the
patent owner in Ireland.

But Apple is in a conflicting situation because large amounts of their money are frozen overseas. Now that means three things:

1. In order to pay their American bill, Apple takes out American loans for money which Apple already has.

2. The CEO’s of the CEO are shareholders who purchased shares into the company in hopes of making more money tomorrow than they did today.

3. To an individual money in a bank account is money it can use but to a shareholder all that means nothing if it just sits in Ireland and not being invested.

Conclusion

Reducing corporation taxes is a good thing! Just look at how much more the UK treasury has collected in the last 8 years. Under former chancellor George Osborne corporation tax rates went down from 30% (2008) to 19% (today), as a result of that initiative the UK Treasury has raised £54bn from corporate tax during 2016-17 financial year which is a 21% increase from the previous year. Along with cutting higher income tax rate from 50p to 45p for high earners’ resulted in raising an extra £1.3bn from income tax in the first month alone. Thanks to Osborne’s tax reforms the UK borrowing is at a 10-year low and the UK is now running a budget surplus and as tax revenues are covering all day to day spending.

If the US under Trump adopt similar policies, they could achieve their ideal goals.Recently, Trump had reduced corporation tax from 35% to 21%. What that means is for companies such as Apple et al. is bring back its cash to the US and investing it into future talent and technology.

For the US treasury it means collecting more money that will help to reduce the national deficit and raise a surplus. My only advice to Mr. Trump is that if he wants sway the corporations back into the US and away from their subsidiary he would ought to consider implementing the “patent box” just as the UK did under George Osborne which provides special lower rate on profits attributable to intellectual property for companies like Apple.

Lower taxes are the route to prosperity, and Mr. Hammond should take note of Mr. Trump and Mr. Osborne’s records when setting UK fiscal policy going forward.

What do you think?

About Pardeep Ghuman

Profile photo of Pardeep Ghuman
Pardeep is an Anglo-Indian Marketer / International Trade Adviser specialising in enhancing Post-Brexit UK-INDIA Trade Relations.

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