New World, New Policy: How Tax Cuts help U.S companies to go abroad

Professor Michael Czinkota

World trade has forged a network of global linkages, in which everyone and every country is involved. Nowadays, a drought in Brazil and its effect on coffee production and prices is felt around the world. U.S subsidies for ethanol production from corn affects prices for other agricultural crops and livestock in the far reaches of the world. As the key player in globalization, any U.S reform tends to change the international market. The old saying goes, if the U.S. sneezes, other nations catch a cold.

After only 100-days in office, President Trump has already released a tax reform memo to the public. Although not complete and detailed, there is clear a signal coming from the release how the government would like to encourage U.S companies to export and invest abroad.

First, comes a cut in the top tax rate for all businesses to 15%, far below the current 35% top rate. This reduction is not imbalanced since it would also benefit the owners and shareholders of international corporations in the United States. With this tax cut, companies, especially manufacturers, can lower the price of exports and have more money for R&D and marketing. This measure will greatly enhance the competitiveness of U.S goods in the global market. Also, a tax reduction will significantly reduce the financial constraint on companies and allow American companies to seek investment opportunities on a global scale.

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Detrimental Effects of a Sequester

Traveling around the country and waiting through airport security is already a hassle. But on Friday, February 22nd the White House warned Americans of even longer waiting times as a result of the mandatory government spending cuts that may go into effect next week Friday. Sequestration is an effect of the Budget Control Act of 2011 that raised the debt ceiling in stages as long as government spending cuts were made.

If no compromise on budget cuts is found between the White House and Congress, then the sequester will automatically be effective and government funding will be reduced across the board.
These budget cuts MAY result in a furlough of many people and a reduction in government services. On the other hand, without budget cuts the debt burden of the country keeps increasing, much to the detriment of future generations.

As the old saying goes: You can pay now or you can pay later.