I Hate the Term MAGA…..but…..

Image for post
Image for post

When your trading competitors are screaming fire, it’s hard not to acknowledge that the primary reason for all this dusting-up over tax reform, which was to update our Depression-Era corporate tax code to modern standards, is going to work.

By citation, let’s actually look at a press release from the German economic thinktank, ZEW, who has worked up a detailed analysis of the impact of the changes to the US corporate tax code. To wit:

According to the findings, the reform will lead to a significant decrease in the effective tax burden (including US state taxes) on companies operating in the US from 36.5 per cent currently to 22.7 per cent. This is caused not only by the considerable cut in the federal statutory tax rate from 35 per cent to just 20 per cent, but also by the planned immediate write-offs for certain capital assets. Following the reform, the effective tax burden on firms in the US will be lower than in Germany (28.2 per cent) and close to the EU average (20.9 per cent).

Now, if you’re one of those “Never” people, or “Resistance” people who don’t know squat about economics (and trust me, you are legion) that paragraph is a BFD. You knew that already, just as you knew both the GOP claims for the bill (everything will be rainbows and unicorns) as well as the Dem claims for it (we’ll be Somalia within 24 months). So, let’s see what a heavily invested third party has to say about it. Next choice tidbit:

This tax cut, along with the decision to stop taxing worldwide income and move towards territoriality will also alter the incentives for international investment, with the US becoming an even more attractive investment location for European companies after the reform is implemented.

However, US companies investing in Europe will also face a lower tax burden since, according to territoriality, there is no longer an obligation to pay US taxes on top of the taxes paid to host countries on profits generated in Europe.

EU countries with low tax rates such as Ireland will particularly benefit, while countries like Germany with a comparatively high tax rate will become less attractive to investors.

Hm. High tax rates = less attractive to investors. Who would have thunk it?

But wait, there’s more:

According to the findings of the study, we can expect to see German companies increase their investment in the US by around a quarter after the reform.

25%? Hot damn. For those of you that aren’t sure what that means, that means more Mercedes, BMW, VW, and Audis manufactured here in the US. And although those plants are very automated, each would employ about 2,000 people at those nice middle class wages that everyone said were never coming back. Plus, they carry a fair amount of ecosystem with them, because putting 2K people in a single place requires infrastructure and supporting businesses. The economic impact, therefore, is larger than just the 2K workers, by a long shot.

Keep in mind that Crazy Uncle Bernie didn’t want you to have this. Or Dickie Shumer. Although to be fair, the Democrats did want this to happen as well……until they realized that they wouldn’t get the credit for it.

Data Driven Econophile. Muslim, USA born. Been “woke” 2x: 1st, when I realized the world isn’t fair; 2nd, when I realized the “woke” people are full of shit.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store