In a speech on Thursday, former President Donald Trump changed his original plan to lower the corporate tax rate for all U.S. businesses to one that would only apply to companies that make their products in the U.S.
Trump told the Economic Club of New York, “You have to make your product in America.” “You can’t get any of these benefits if you hire foreign workers or outsource your work.”
Along with the idea, Trump said again that he supports new, universal taxes that all U.S. importers of foreign goods would have to pay. He has talked about putting a 10% tax on all goods in the past.
The Republican candidate for president didn’t say how he would make sure that U.S. businesses paid different amounts of taxes.
The S&P 500 SPX -0.30% is made up of big, public companies that often do business in other countries. S&P Global says that 119 of these companies had foreign revenue exposure in the first quarter of 2021. Many others have operations outside of the U.S. that help them make sales in the U.S.
Many other businesses depend on imported goods made by foreign workers that could, in theory, be made in the United States. It’s not clear if companies that transfer any part of their production process would be able to benefit from the proposed lower corporate taxes.
The U.S.’s services sector makes up almost 80% of its GDP. While service companies don’t really make “products” in the usual sense of the word, more and more businesses are outsourcing tasks like accounting, IT support, and marketing.
Some tax policy experts were confused by the plan.
Scott Lincicome, an international trade expert at the libertarian Cato Institute, wrote on X, “Trump’s big corporate tax plan is protectionist, wouldn’t work, and wouldn’t apply to the vast majority of the economy, which is services.”
As a tax policy analyst at the conservative American Enterprise Institute, Kyle Pomerleau told X that he didn’t “know how to interpret” the plan because Trump’s 2017 tax law changed the U.S. corporate tax code so that it “does not apply to foreign production.”
Ryan Ellis, head of the conservative Centre for a Free Economy, says that one way to make this happen would be to bring back the domestic production activities deduction, which Trump got rid of when he changed the tax code in 2017.
Companies could deduct a certain amount of approved production activities from their taxable income. However, the deduction was criticised for being hard to understand and follow, which made it hard for businesses.
It wasn’t set up to stop businesses from making anything in other countries either; instead, it was meant to encourage businesses to make things in their own country.
The corporate income tax is applied to profits that corporations make in the United States from making goods and services in the United States. Senior economist at the Tax Foundation Erica York told MarketWatch, “It’s not entirely clear what Trump means due to this fact.”
“Perhaps it means companies would have to pay a 21% tax on their US income if they did a certain amount of business abroad, which makes no sense,” she said. “It’s not clear why Trump wouldn’t want American businesses to do well both at home and abroad. If American companies can beat out foreign companies in third markets, that’s good for workers here too.” We want to be successful both at home and abroad.
