Stasis On The Hill

By Global Tax Weekly

What to say about the failure of the US Congress to reach a substantive agreement on tax and spending reform last week? Of course it’s a failure of the political establishment in general, rather than of the Congress in particular. Acres of verbiage have been devoted to analyses of the relative contributions of all the leading players, from the President downwards, the need to change the Constitution, the gerrymandering that has reduced the effectiveness of the electoral mechanism in both houses, but particularly in the House of Representatives, etcetera, etcetera and so forth. So we won’t go there. Still, from the perspective of business, the whole thing is a disaster: as a destination for investment, the USA is already uncompetitive, and the prospect of endless logjam which now stretches out certainly until January and probably much further will do nothing to help. Businesses usually have stability at the top of their wish-lists, so as to be able to plan their investments, and I suppose you could say that they have got it, since nothing is going to change in the foreseeable future. But that means continuing lack of competitivity, continuing leakage of US corporate profits and capital to lower-tax foreign destinations, and continuing preference for other markets on the part of foreign manufacturers and investors. All of that is bad for American jobs. Don’t be fooled by the ebullient stock market: companies like Apple and Google may have their capital base in the US, but they are rewarding stockholders with profits made abroad, not in the US. Apple is a perfect example, indeed, turning corporate somersaults in order to repatriate enough of its foreign earnings to be able to pay dividends without incurring horrendous tax charges in the US. I don’t have a panacea for America’s ills – there is not much point in hoping for a bi-cameral right-wing legislature after the damage the Republicans have done themselves with their antics, and the now-more-probable bi-cameral left-wing legislature will bring on another onslaught of anti-business legislation. The future looks bleak.

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