Investments Global Expert says the US Can Outdo a Global Recession with Corporate Tax Reform

Mar 31, 2023 – (SeoXnewsWire) – While inflation may have reached its long-awaited peak, the global economy is still limping along at a snail’s pace. Despite central banks around the world aggressively tightening monetary policy to rein in inflation, the measures have had an adverse effect on economic growth. According to the UN, this global slowdown could potentially cost nearly 20% of the world’s income.

Amid the current slow-paced global economy and inflation concerns reaching their peak, it is crucial to provide workers and businesses with improved choices. Adam Kovalsky, an expert at Investments Global, believes that if the US wants to steer clear of a recession and become the primary contributor to global growth in 2023, it must make changes to its tax priorities.

The Tale of Two Tax Policies: Lessons from the UK and Estonia for Economic Growth

Lawmakers should be aware of what they should avoid before trying to solve problems. Great Britain has recently made a policy error. In November, Finance Minister Jeremy Hunt proposed a £25 billion tax hike, including increased taxes for middle-class workers and a windfall tax on oil and gas companies. All this is happening as the country’s corporate income tax is set to increase by six points in two months.

The UK’s economic forecasts remain bleak, and many large companies are setting up shops in neighbouring countries instead of expanding their operations domestically. Furthermore, productivity levels have continued to decline two years after the pandemic’s peak. The UK government’s plan to rebound from these issues needs to be revised. Finance Minister Hunt is suggesting that retirees should return to work and is refusing to cut taxes.

Although smarter tax policies won’t solve all of Britain’s problems overnight, a better tax code can increase investment and productivity, putting the economy on the right track. Estonia provides an excellent example of how to achieve this. Before 2000, the country had a traditional corporate income tax system similar to the UK’s, which was complex, burdensome, and uncompetitive.

However, Estonia reformed its corporate tax code and replaced it with a distributed profits system, where profits are only taxed at the time of distribution to shareholders. The adoption of a distributed profits system in Estonia’s corporate tax code has proven to be highly successful despite initial scepticism. The approach stimulated economic growth and allowed Estonia to lead Europe funding in venture capital, startups, and capital investment. Since the tax reform in 2000, GDP per capita of Estonia has increased by 119%, compared to the US and OECD’s GDP per capita, which only grew by 27% and 26%, respectively. Consequently, it’s clear that Estonia’s approach has been highly effective.

As such, American policymakers should follow Estonia’s example, rather than the UK’s, if they want to help lead the world towards greater economic certainty. To this end, the Tax Foundation’s new Tax Reform Plan for Growth and Opportunity outlines the steps that need to be taken.

Tax reforms- for growth and simplicity

In a bid to make the US a more attractive destination for corporations and their capital, lawmakers have been urged to undertake a significant reform of the corporate tax system. The proposed solution involves replacing the complex corporate income tax regime with a 20% distributed profits tax, ending the double taxation of business income and incentivizing investment.

According to estimates from the Tax Foundation, combining this reform with smart individual tax changes that reduce marginal tax rates could boost long-run GDP by 2.3%. Additionally, it raises wages by 1.3% and creates an additional 1.3 million full-time jobs, all while maintaining revenue neutrality.

But balancing domestic policy is just the first step. The importance of trade in driving growth cannot be overlooked. Protectionist tariffs must be eliminated, which come at a steep cost to consumers, the economy, and international relationships. Such tariffs undermine the US’s success and signal to trade partners that the US is not interested in their prosperity.

Stepping Up to Stand Out: How Prioritizing Growth Can Set the US Apart

In a global environment where some policymakers are not prioritizing growth, it’s crucial to implement pro-growth policies. Countries such as the UK, the Netherlands, Chile, and Colombia have increased their corporate tax rates and reduced support for business investment.

The 2021 global tax deal has diverted the attention of some countries from real crises, making the implementation of a complex global minimum tax the least of their concerns. In contrast, the US can distinguish itself by adopting tax policies that prioritize growth in an anti-growth global tax climate.

With a Democratic president and a Republican speaker of the House, the narrow path for bipartisan reform in the US presents a challenge. While one side is pushing for misguided tax hikes, the other is struggling to propose workable solutions. To avoid repeating other countries’ tax mistakes and prevent a recession, Washington must heed the UK’s warning and find common ground to prioritize growth. Despite the tide turning on inflation, a bipartisan agreement is essential.

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