How to fix the corporate tax system – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From The Boston Globe

With Europe in disarray after Brexit, US lawmakers should fix the nation’s broken system for taxing foreign profits of US corporations.

In theory, foreign profits of US corporations are subject to a US tax of 35 percent. But in practice, these profits are not taxed at all by the United States — unless they are brought back to the states. Because of this rule, US multinationals have kept abroad over $2.5 trillion of their foreign profits.

This huge sum could be a growth engine for the American economy. The money could be used to build factories, modernize infrastructure, or pay dividends in the United States. Instead, it is deposited in bank accounts or invested in foreign countries.

We clearly need to reform this system, but responses in the past have not had much success.

Most Republicans argue for a territorial tax system in which foreign profits would be taxed only where they are earned. But this unfortunately won’t work. US multinationals have become very adept at shifting their earnings to tax havens, such as Bermuda, and other low-tax jurisdictions, such as Singapore.

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Opinion: Brexit could be great for the U.S. – Simon Johnson

MIT Sloan Prof. Simon Johnson

MIT Sloan Prof. Simon Johnson

From MarketWatch

The British vote to leave the European Union has shaken world financial markets. The immediate and medium-term prospects for economic growth in the United Kingdom are severely diminished, and the impact on the rest of Europe will be negative.

Some of the obvious political winners from Brexit are people who do not like Western Europe and what it stands for. Ironically, the United States — Europe’s greatest ally and the EU’s largest trading partner — may also end up as a beneficiary, though not if Donald Trump, the presumptive Republican nominee, wins the presidential election in November.

Britain has a population of just over 65 million people and what was, at least until Thursday, the world’s fifth-largest national economy, with annual GDP totaling nearly $3 trillion. In the context of a $75 trillion global economy, Britain’s is a relatively small, open one that relies heavily on foreign trade — annual exports are typically in the range of 28%-30% of economic activity.

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Would a ‘Brexit’ matter to America? A former British diplomat on what’s at stake — Phil Budden

MIT Sloan Senior Lecturer Phil Budden

MIT Sloan Senior Lecturer Phil Budden

From WBUR Cognoscenti

Given the decibel level of the current U.S. presidential elections, Americans can be forgiven for missing an equally lively debate underway in Britain over whether the country should remain in the European Union (EU) or not. A debate the press and financial markets have dubbed “Brexit” – short for “British exit.”

As dramatic as any Shakespeare play, the sound and fury from Britain in the run-up to the June 23 vote is sure to be deafening. And while Americans can be forgiven for favoring the latest pictures of the Royal Family or the pageantry of the Queen’s 90th birthday, over, say, the arcane details of the referendum to remain in the EU, make no mistake: Britain’s upcoming sovereign decision matters greatly to those in the U.S. Here’s why.

First, there are American interests in the EU, a club of 28 sovereign nations. Under British leadership, those nations created a single European market by linking their economies almost a quarter-century ago: America benefits from the openness of this rules-based single market, with its half a billionwestern consumers. Much is made of America’s investment in Asia, but the U.S. has invested more than three times as much in Europe, paying dividends in both jobs and economic returns.

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