Opinion |

Trump Is Right, So Let’s Copy Him

Though U.S. tax rates are low overall, America's corporate tax rate of 35 percent is among the highest in the world. That’s exactly what Trump wants to fix

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U.S. President Donald Trump arrives at John F. Kennedy International Airport May 4, 2017 in Jamaica, New York.
U.S. President Donald Trump arrives at John F. Kennedy International Airport May 4, 2017 in Jamaica, New York.Credit: AFP, Brendan Smialowski

Transportation Minister Yisrael Katz didn’t hesitate. He looked the interviewer directly in the eye and said, “If I were finance minister, I’d lower taxes on cars.” Is there anyone better than him?

After all, drivers complain about the heavy taxes imposed on cars and gasoline in Israel. Some even know that the state collects the enormous sum of around 40 billion shekels ($11.1 billion) a year via the purchase taxes, customs duties, fees, gas tax and value-added tax imposed on this industry. So really, why not reduce this burden?

The minor snag can be summarized in one question: How would we fill the state treasury then? That’s something Katz forgot to tell us. Would he raise value-added tax? Cancel the new tax credits for parents with young children? Raise income and corporate taxes? Obviously not. Those would be truly unpopular steps, and he’s responsible only for handing out the goodies.

It’s also important to realize that taxation on the vehicle industry is quite fair. The more expensive a car is, the more taxes the owner pays on it, while someone who has no car (in general, a person with a low income) doesn’t pay anything. Nor should we forget that the moment car and gas prices go down, Israelis won’t “make do” with buying a mere 300,000 new cars every year; they’ll buy 500,000 – and then there will be more traffic jams, more accidents and more air pollution.

But in any case, the issue of vehicle taxes is part of a broader issue that has recently appeared on the agenda: U.S. President Donald Trump’s proposed tax reform, and its impact on us.

The United States is viewed, rightly, as a country with low tax rates. That’s a major reason for its economic success. It has almost no customs duties or purchase taxes, and income tax rates are also low. But there’s one glaring exception to this rule: Its corporate tax rate of 35 percent is among the highest in the world.

That’s exactly what Trump wants to fix. He wants to lower the corporate tax rate to just 15 percent, to encourage the relocation of businesses to the United States, the establishment of new enterprises and higher investments – or in other words, to encourage growth. He also wants to lower the tax on capital gains to 20 percent, and the highest marginal income tax rate to 35 percent, to encourage people to work.

This is a package of correct steps. Lowering corporate taxes will bring a double benefit. Major multinational corporations like Apple, Google, Microsoft and Amazon will repatriate revenues from countries like Ireland and Switzerland, putting billions of dollars into the U.S. Treasury. In addition, economic activity in the United States will grow, which will lead to increased tax revenues. Already, Intel has decided to locate its next new plant in Arizona rather than in Ireland or Israel.

Therefore, there’s no reason to get excited over fears of an increased deficit or harm to the poor. Exactly the opposite will occur. In 1986, U.S. President Ronald Reagan lowered taxes, and the result was lower deficits and a rise in tax payments by the rich. The same thing happened here in 2003, when then-Finance Minister Benjamin Netanyahu lowered taxes and raised growth.

Fake social welfare advocates like to ignore these economic facts. They sneeringly term the growth that ensues when taxes are lowered “trickle-down theory.” But what can you do? The truth is that growth does trickle down, incentivizing and improving both the state of the economy and the situation of the poor.

Trump’s plan also has another salient good point: It would eliminate various tax breaks and benefits that distort the allocation of resources in the economy. This is in contrast to Finance Minister Moshe Kahlon, who loves to hand out benefits and tax breaks to certain groups in order to win their plaudits.

Therefore, we ought to learn from Trump’s plan and copy it. True, we wouldn’t be able to eliminate the heavy taxes on cars and gas, but a reform of corporate and income taxes is currently essential. In fact, the entire world will respond to Trump’s plan by lowering taxes. Thus, we would be well-advised to be among the first.

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