Saturday, May 17, 2008

Why the US needs to lower taxes and attract foreign investments

With 30% Federal Corporate Income Tax, 10% Sate Corporate Income Tax, and in the case of New York City, another 10% City Corporate Income Tax, and with Sales Tax of nearly 10% in most states, the US is one of the most tax intensive countries in the world.

Which is a shame, because it fabulous infrastructure, highly qualified workforce, huge capital markets and large domestic market the US is one of the best places to set up a global head quarter. A company could base it global HQ in the US and cut short by many years the time it takes to grow.

But these high taxes come in the way, so instead companies want to locate the corporate head quarters in Dubai, London, Gibraltar, or are agnostic about where they locate their headquarters.

With the diminished role of the US Dollar as the world's reserve currency, the US has seen since June 2007 reduction in monthly Government Bond purchases by foreign nations from $300B a month $80B a month. This has sucked a lot of low cost liquidity out of US capital markets.

To compensate for this reduced liquidity, the US needs to go all out to woo foreign companies to shift their global headquarters to the US. And the best way to do this is to cut taxes drastically and even go as far as giving 20 year tax holidays to any businesses over $5M turnover that relocate headquarters to the US.

With businesses relocating to the US, investments will follow and the US should easily be able to compensate for the low cost $220B it is losing out every month.

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