Tax reform should be accompanied by trade reform to address our trade deficit in manufactured goods. In 2016, the U.S. trade deficit in manufactured goods was $750 billion. President Trump and others are justified in raising concerns about U.S. manufacturing.
Without trade reform, our trade competitors will continue to game international trade to their own benefit. This manipulation could nullify many of the benefits of tax reform. Reforms should include reclaiming sovereignty over domestic tax policies and meaningful enforcement of agreements.
Reforms should initially focus on manufacturing since it is a major driver of our economy. Corporate taxes paid by manufacturers contribute about 3 percent of federal revenue. Reforms there would have little impact on total revenue with the potential for much greater economic growth. There is considerable inertia in our economy. These reforms cannot wait.
Corporations should not directly pay taxes on their manufacturing derived income, but should be taxed when dividends are paid to shareholders. To encourage U.S. capital investment and research and development, a 25 percent tax credit could be implemented.
To encourage U.S. manufacturing, income from domestic content could be taxed at 20 percent, 35 percent for imported content. Based upon aggregate content the effective rate would fall between 20 percent and 35 percent with no exclusions, deductions or deferrals. Stock appreciation could be taxed as ordinary income at 15 percent. Imported raw materials could be treated as domestic content for taxation purposes.
Favoring domestic content will help rebuild the U.S. supply chain, which has been eviscerated in recent decades. A robust U.S. supply chain will be essential to a U.S. manufacturing renaissance.
To encourage the sale of U.S. manufactured goods, a similar strategy could be used to determine corporate taxes for the distribution and retail chain. I question lowering all corporate taxes. Many sectors of our economy do not need encouragement, as they are doing well. We should not provide an unnecessary windfall for the rich at the expense of federal revenue.
Tax reform should also consider the economic sector and the potential for adding high-quality jobs. A manufacturing minimum wage, much higher than the standard minimum wage, plus benefits, should be established so that workers can participate in any gains.
Our country is faced with overwhelming structural deficits, which fiscal restraint cannot significantly mitigate. Without significant economic growth, the opportunity for reforms may slip away following the midterm elections.
Greg Williamson is a retired electrical engineer and a Republican. He lives in Metamora.