There are some campaign promises which Donald Trump will carry through - and some which he won’t. It is thus significant that the new US treasury secretary, Steven Mnuchin, chose to put corporate tax cuts at the top of the “to do” list for the new administration.
Trump’s tax programme will have to be agreed with Congress, but it is clear that the proposal to slash the corporation tax rate, in particular, is central to all his plans.
Trump’s campaign promise was to reduce corporation tax from 35 per cent now to 15 per cent, a massive reduction. There was talk that Trump might back away from this, or negotiate a smaller reduction with Congress. But while the detail will indeed have to be negotiated, the direction is clear.
Tax reform will be Trump’s top priority, Mnuchin said, with the biggest reform since the days of Ronald Reagan. There will be big cuts in personal tax but, more importantly from Ireland’s point of view, corporation tax is to be slashed.
Mnuchin outlined the central importance of this corporate tax cut in the Trump plan. It would, he said “ create huge economic growth” and “bring a lot of cash back into the US”.
In turn, we presume, this will help to pay for Trump’s other campaign promises in areas such as infrastructure spending.
If Trump can succeed in getting US companies to repatriate a load of cash from their holdings offshore, this will give the US exchequer a potentially significant, if short-term, boost, as they will pay tax on the money returning.
This, together with other changes in the way US companies are taxed, would change the international tax environment for big US companies very significantly.
The precise implications of this for foreign direct investment will take time to unfold. But the key point is that US firms would, if the changes went through, not face the same push to establish subsidiaries overseas for tax reasons.
They would still do so for other motives, of course, but these tax changes would be bound to have a big influence on future flows of foreign direct investment.
