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Why tax cuts for the rich solve nothing

One might get away with this in the case of personal income tax, because even if the losers notice, they are not sufficiently organized.

By contrast, even small businesses in the United States lobby Congress.

Most economists would agree that America’s current tax structure is inefficient and unfair.

Some firms pay a far higher rate than others.

Perhaps innovative firms that create jobs should be rewarded, in part, by a tax break.

But the only rhyme or reason to who gets tax breaks appears to be the effectiveness of supplicants’ lobbyists.

One of the most significant problems concerns taxation of US corporations’ foreign-earned income.

Democrats believe that, because US corporations, wherever they operate, benefit from America’s rule of law and power to ensure that they are not mistreated (often guaranteed by treaty), they ought to pay for these and other advantages.

But a sense of fairness and reciprocity, much less national loyalty, is not deeply ingrained in many US companies, which respond by threatening to move their headquarters abroad.

Republicans, partly out of sensitivity to this threat, advocate a territorial tax system, like that used in most countries: taxes should be imposed on economic activity only in the country where it occurs.

The concern is that, after imposing a one-off levy on the untaxed profits that US firms hold abroad, introducing a territorial system would generate a tax loss.

To offset this, Paul Ryan, the speaker of the US House of Representatives, has proposed adding a tax on net imports (imports minus exports).

Because net imports lead to job destruction, they should be discouraged.

At the same time, so long as US net imports are as high as they are now, the tax would raise enormous revenues.

But there’s the rub: the money must come from someone’s pocket.

Import prices will go up.

Consumers of cheap clothing from China will be worse off.

To Trump’s team, this is collateral damage, the inevitable price that must be paid to give America’s plutocrats more money.

But retailers such as Walmart, not just its customers, are part of the collateral damage, too.

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