Tax Reform Is ‘Critical to US Competitiveness’
OFII issued the following statement in response to the Unified Framework for Fixing Our Broken Tax Code.
WASHINGTON (AP) — President Donald Trump highlighted his tax cuts and deregulatory efforts with a salesman's pitch to an elite economic forum in Switzerland on Friday: The United States, he said, is now a far more inviting place for foreign companies to spend, invest and build.
While discounting some of Trump's more grandiose claims, many economists agree that he has generally made the United States more welcoming for businesses.
Last month, Trump signed a tax package that cut the corporate income tax to 21 percent from 35 percent. The Republican Congress has also passed laws to overturn at least 15 rules put in place by the Obama administration, and the administration has put dozens of other regulations on hold. Those steps should encourage more overseas businesses to move to the United States or expand existing operations, economists said.
"It was a vastly exaggerated claim, but there is some truth to it," said Adam Posen, president of the Peterson Institute for International Economics.
Before Trump, "the high marginal tax rate and some of the regulation on specific industries did mean the U.S. was not always the first choice," Posen said.
Nicholas Veron, a fellow at Bruegel, a think tank in Brussels, Belgium, said that among European businesses, "there is some agreement that the tax plan will make it more attractive to invest in the U.S."
"Compared to other things the president says, this looks reasonably based in fact," Veron said.
Still, Posen suggested that Trump missed an opportunity to speak up in favor of the global trading system or to offer specific proposals on how to improve, say, the protection of intellectual property rights.
Corporate executives in Davos, Switzerland, for the annual World Economic Forum meeting were generally bullish about Trump's agenda and the business climate he is helping build in the United States.
"Since you have been successful with tax reform, we decided to develop next-generation gas turbines in the United States," Joe Kaeser, CEO of the German engineering firm Siemens, told Trump at a dinner Thursday night. Siemens employs roughly 50,000 people in the United States.
Others said they were encouraged by signs that U.S. economic growth may accelerate this year, in part because of the tax cuts for consumers and businesses, which could encourage more spending and investment.
"It's kind of amazing to have all your customers talking about adding jobs and growing their business," Bill McDermott, CEO of business software company SAP, told Trump at the dinner Thursday.
Still, foreign investment in the United States had already been on the upswing in recent years, well before the Trump administration took office a year ago.
Foreign investment in factories and other facilities and foreign purchases of U.S. businesses reached $477 billion in 2015, a record high, before declining through the third quarter of 2017, according to government data analyzed by the Organization for International Investment, a trade group. (Those figures don't include temporary investments, like the purchase of U.S. stocks by overseas investors.)
OFII represents overseas companies with subsidiaries in the United States, such as Samsung, Bosch, Nestle and Toyota.
"America's always been open for business," said Susan Aaronson, a professor of international affairs at George Washington University.
Aaronson said she thinks the beneficial impact of the tax cuts has been exaggerated. Businesses around the world crave stability, and the tax cuts will likely have to be revisited in the coming years to address burgeoning U.S. deficits, she said. That prospect could make last year's tax package less appealing to some companies, she added.
The United States had received about 37 percent of all global investment in 2000, a figure that tumbled to 15 percent in 2008, according to data analyzed by the Organization for International Investment. The decline reflects the impact of the Great Recession and China's admission to the World Trade Organization, which made it a more attractive destination.
The U.S. share did rebound to 24 percent by 2016.
Nancy McLernon, CEO of the OFII, praised Trump for meeting with global CEOs at Davos and for what she said was his recognition of the benefits of foreign investment.
"I do think tax reform will spur foreign direct investment in the United States," McLernon said. "We think it will make the U.S. more competitive."
Still, McLernon said she hoped Trump would adopt a more welcoming approach to international trade, which helps spur foreign investment. Trump has attacked several existing U.S. trade deals with other countries, including a bilateral pact with South Korea, as threats to America and U.S. jobs. Yet since that agreement was reached in 2007, South Korean investment in the U.S. has jumped by 40 percent, McLernon noted.
"Global companies want to be in countries that are globally connected," she said.
By Christopher Rugaber, Friday, January 26, 2018