Several months into the Trump presidency, there’s no doubting that the nation remains divided. The growing pains of assuming office have been enhanced by the business magnate’s lack of political experience, leading to a number of gaffes and some difficulties appointing key members of his cabinet.
However, the same qualities which have made this a difficult beginning are what got him elected, and still stand to serve him well in the future. Trump is a businessman, with a clear agenda to reform business law as a means to stimulate economic growth. While the focus recently has been in other areas, a suite of changes to help businesses of all sizes are just around the corner.
Business centric tax reforms
American enterprise has been driven by many positive factors, chiefly the strength and size of the domestic market. One factor that hasn’t helped however is the 35% rate of corporate tax.
Not only is this almost three times as high as countries like Ireland, it also covers all profits by a U.S. based company, regardless of where those profits came from. This has led to a situation where many U.S. corporations, particularly tech giants, have relocated some or all operations to countries with a lower tax rate.
A recent U.S. court ruling on the issue favoured Amazon in its tax arrangements, on the ground that its European subsidiary performed enough unique services locally to count as a distinct entity, away from U.S. jurisdiction. But as long as America insists on claiming foreign revenue, large companies will be wary of basing themselves entirely in the U.S.
Trump has publically stated his intention to change both factors. Corporation tax is due to fall by as much as 20%, and tax deductions have been discussed for all domestic expenditure; a concept which may even stretch to foreign investments in American companies. The citizenship tax meanwhile – favoured by the United States and only one other country worldwide – is set for the chopping block.
Trump’s goal is to encourage businesses to return to and set up in the US. Intentionally or otherwise, he may also encourage a growth in nomadic entrepreneurs, who will no longer have to worry about tax arrangements when conducting business from a far flung beach. Ultimately the changes should provide a greater measure of clarity and fairness for everyone.
Another concern for President Trump has been the embattled US industrial sector. He sees this as being largely driven by cheaper goods coming into the U.S. from abroad, making the higher paying U.S. factories untenable. The key to battling this is a long touted GOP policy called the ‘border adjustment tax (BAT)’.
The BAT is akin to a soft trade tariff. It taxes imported goods while exempting American goods, both those being exported and those consumed in America. While this may result in some short term price rises, the aim long term is to make American manufacturing more competitive by giving homegrown businesses a leg up domestically.
An additional and more conventional import tax has also been suggested, in order to combat specific goods from flooding the market. This was touted as a means to ‘get tough’ on China, but this attitude may have shifted lately. Trump has softened his approach after meeting Chinese Premier Xi, with a bid to collaborate on a solution to North Korean aggression.
As a bartering chip in this relationship, America is already in discussions with China to strike new trade deals. Increased access to the world’s largest market would be a huge boon to US business, particularly its technology industry, which has often struggled to enforce its copyright, or even to gain permission to sell its products.
Strong climate for acquisitions
It may seem counter-intuitive to suggest that Trump would make it easier to buy American businesses. But investment is investment, and as long as the businesses stay in America, it’s unlikely that anyone will complain. Indeed, Trump has sourced plenty of foreign investment for his own projects in the past.
This includes a project using the EB-5 Immigrant Entrepreneur Scheme. This program, implemented in the 1980s and regularly renewed since, allows foreign investors to work towards a green card by investing in an American business. Part of the reason it has been favoured by successive governments is the tendency for large businesses to move their operations abroad, as discussed above.
After much wrangling, changes by the USCIS earlier this year would increase the required investment, and ensure that investment takes place in more deprived areas. But as some people call for the EB-5 scheme to be annulled, it could in fact become a cornerstone of Trump’s economic policy. The combination of tax cuts and government stimulus should drive an influx of returning businesses and foreign investments, creating jobs and boosting the economy.
While there are improvements to be made in terms of employment and wages, the figures already look rosy. Unemployment in Trump’s first month was down to 4.7%, with 235,000 new positions filled. What will please Trump even more is that the largest spates of hiring were in his three keystone industries – mining, manufacturing and construction.
The consumer economy is likely to benefit, particularly with recession becoming a more distant memory. And even with the gains in old industry, an indelible shift is taking place to newer areas of development. Solar and wind power are taking hold in middle America, with the technology now making good business sense as well as being good for the planet.
Training and education are also likely to come under the microscope. Trump’s ebullient attitude towards China may have changed slightly, but he’ll still be worried about their efforts to retain graduates in science and maths, who provide a large portion of America’s skilled labour. The focus is likely to be on addressing this shortfall through national schemes. Fingers crossed for Betsy DeVos.