August 04, 2020

The November election will offer the voters an interesting economic choice. The voters will have to decide whether globalization has run its course and if so, what type of industrial policy to pursue. The slogans Make America Great Again and Build Back Better embrace variants of an industrial policy which we disagree with. The slogans suggest that neither candidate is vigorously opposed to an industrial policy, in fact they both seem to favor some version of an industrial policy. However, at the margin incentives do matter and we do need to focus our attention on the incentive structure. The candidates view towards foreign earnings and corporate inversions illustrates how focusing on incentives tempers a Presidential Candidate industrial policy impetus. In 2016 Candidate Trump argued that by lowering the corporate tax rate to 21% from 35% corporations would have less incentives they could even choose to relocate to the US. He chose the rate wisely ; the average EU rate is 21.8% at these rates there is no incentive to invert. Juxtapose the Trump position to that of Candidate Biden who wants to raise the corporate tax rate to 28% from 21% and double the tax rate on foreign earnings. The Biden proposal will restore the advantages to the corporate inversions. The incremental tax on foreign earnings will reinforce the inversion effect. The focus on incentives suggest that contrary to the Biden good intentions , to force companies to relocate the e US, his polices will have the opposite. Good intention and good polices do not necessarily go hand in hand.

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