Why the lower corporate tax rate and supply side economics will not work

This web site does not include bills or legislation that use lower corporate tax rates as a method to disincentivise offshoring. Like supply side economics that cannot work because of offshoring, simply lowering corporate tax rates will not change incentive for companies to hire in the U.S. or trading partner governments to try to reach parity in trade agreements. Corporate interests may state otherwise because it is in their best interests for them to do so but there is no evidence to suggest that it would and most have a conflict of interest in doing so. Lower corporate tax rates will instead, start a new race to the bottom for corporate tax rates around the world and create economic deficiencies and treasury losses for the trading partners. Like supply side economics it will only fuel wealth inequality and corporate over-reaching.

Parity

Parity, as discussed in my book, is when trading partners are on equal footing and neither trading partner is affected negatively in its trade generally and there is an overall fairness to the agreement that does not harm. There will always be some level of disparity in specific areas of trade, but when the overall agreement is negative for a country, meaning its citizens, then the agreement harms and is disparate. Parity can be achieved by incentives and policies that encourage the right kind of incentives. A policy of lowering corporate tax rates does nothing to change incentive toward parity for trading partners or an incentive to hire in the U.S. that did not exist prior.

Corporate tax rate

Although international companies, some with U.S. origins, may see greater profits and capital cushion increases from lower corporate tax rates, that does not equate to an incentive to hire in the U.S. The Trump Administration has lowered the corporate tax rate without placing any incentives to hire in the U.S. and China has already stated an intent to lower its corporate tax rates in certain areas of trade. This harms the treasuries of both countries, does little for parity, and does nothing for incentive. It is a lose/lose situation for both countries, but a win/win situation for the international companies. Those companies are growing in capital control and power despite having potentially differing international interests, obligations, and loyalties. The increase in the capital cushion of U.S. companies also adds to an already out of control problem of wealth inequality and its financial consequences for the country. Lastly, some tax rates in other countries may actually be lower than the lower tax rate in the U.S. even after such a reduction and not affect the trade balance for those countries.

Tariffs

Instead of trade tariffs targeting and harming specific countries, a flexible trade tariff that addresses incentive and parity should be enacted. The tariff should address all countries equally and encourage parity by using corporate tax rate disparity and mean income disparity to determine the tariff rate for each trading partner. If the trading partner has a lower corporate tax rate or a lower mean income for its citizens, that trading partner would pay a higher tariff and the reverse would be the case where the trading partner was closer in parity regarding the same factors. This would encourage the trading partner to increase the corporate tax rate, instead of lowering the corporate tax rate. It would also encourage the trading partner to internally increase the mean income of its citizens. This would be a win/win situation for the trading governments. It would also be hard for the trading partner to claim it was being treated unfairly when it was within its own power to change the unfairness and reach parity.

Combined with tax incentives within the U.S., it would be possible to change the incentive internally as well as externally. There should also be a stepped corporate tax rate in the U.S. that applies to any international company that is not part of a parity reaching trade agreement. There are all kinds of incentives to apply. The current preference is to do nothing.

Supply Side Economics (the trickle down economy)

Supply side economics was used by President Hoover and the end result was the financial collapse that caused the Great Depression, so there is evidence that supply side economics never worked. But because of globalization and offshoring it has become a physical impossibility. The George W. Bush tax cuts during that administration ended with the “worst financial collapse since the great depression.” There is, in fact, no evidence to show that it works or even if it does the results are so short lived that it does not make sense to attempt. The repeated efforts to do so are not based on fact. When jobs that are created are likely not to be created in the U.S. and there is no corresponding attempt to incentivise for such hiring in the U.S. it is not going to occur simply because it would be nice if it would.