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Job Creation First, Tax Reform Second In House Tax Bill

The House of Representatives has passed the tax reform bill. Although the media calls it the Trump tax reform bill it is only partially representative of President Trump’s tax reform goals.

CNBC’s Jacob Pramuk reports the House plan would permanently chop the corporate tax rate to 20 percent from 35 percent and make other tweaks aiming to make businesses more competitive. It would reduce individual tax brackets to four from seven and make changes to several tax breaks. Among them, the bill would House passes tax billlimit state and local deductions and the mortgage interest deduction, eliminate the personal exemption and nearly double the standard deduction.

The bill passed 227-205; thirteen Republicans voted against the bill, and zero Democrats voted for it. The Republicans who voted no were from New York, New Jersey, California and North Carolina according to reporting by the New York Times.

Job creators praised the bill for lowering corporate rates permanently and sharply, and for overhauling the international tax system.

The New York Times also reports that for the first time, the United States is proposing to effectively levy a global minimum tax of 10 percent, which would apply to income that high-profit subsidiaries of American companies earn anywhere in the world.

The effort is aimed at preventing companies from shifting profits abroad and encouraging the repatriation of profits earned overseas. Those profits are currently not taxed until they are returned to the United States, giving companies an incentive to keep that money offshore since they would be taxed at the current corporate tax rate of 35 percent.

The White House has said more than $2.5 trillion in American profits are held offshore, other estimates peg the number at $2 trillion.

The bill would offer a one-time 12 percent tax incentive rate on liquid assets held overseas, like cash. The tax, which is reduced from the current 35 percent tax rate, would be payable over eight years. For illiquid assets, like equipment or property, the tax rate would be 5 percent.

$2 trillion is a staggering sum in relationship to the main economic drivers of the American economy – small business – and in terms of big business it is also huge – it is almost the market value of Apple, Microsoft and Google combined.

In terms of capitalizing America’s largest employers, $2 trillion would capitalize Walmart (1.3 million jobs), HomeDepot (340,000 jobs) General Electric (305,000 jobs), Kroger (443,000 jobs), IBM (380,300 jobs) more than twice over.

Getting that money repatriated and invested in the US economy could be YUUUGE – to use one of President Trump’s favorite descriptors – in terms of creating new jobs.

President Trump reacted with a Twitter message that congratulated the House, and cited “a big step toward fulfilling our promise to deliver historic TAX CUTs for the American people by the end of the year!” “A simple, fair, and competitive tax code will be rocket fuel for our economy, and it’s within our reach,” said White House Press Secretary Sarah Huckabee Sanders, according to reporting by Bloomberg’s Anna Edgerton.

“We are on the precipice of passing a fairer, flatter, simpler, more competitive tax code, one built for three percent-plus economic growth,” said Rep. Jeb Hensarling, Chairman of the House Financial Services Committee, and a longtime advocate of a profit repatriation tax incentive.

The Tax Cuts and Jobs Act H.R. 1 is a good jobs creation measure, and a start on tax reform. Its greatest defect is the one that prompted Congressman Walter B. Jones (NC-3), a leading fiscal conservative to reluctantly vote against it – it does not include spending cuts along with the tax cuts.

There is still a lot of work to be done to get a tax reform bill through the Senate, but the House bill is a start, and, with its extensive economic growth and job creation features, it is a better start than we initially thought it would be.

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