Monday, March 5, 2018

China Cuts Taxes to Stop Capital Flight to the U.S.

Taxes in China can be a whooping 45% and this is causing capital flight to the U.S. As an American I think that this is great news as more capital here often means more investment, better business growth and more jobs. However, China is not willing to allow this money to leave without a fight. They are simplifying their tax code and seeking to retain some of that money.

While tax reform is occurring they are likely to implement other programs that encourage capital to stay within the country. Not sure what those are yet but they will likely revolve around create incentives and punishments.

Recent tax reductions in the U.S. make the country a little more competitive and are taking a toll on growing economies like China. The question is, "in the long run will we see a net positive increase of investment in the U.S. from many different countries?"

No one knows for sure but my suspicion is that we will. If China is having some problems with capital flight there is likely an increased percentage of capital outflow from other nations as well. Perhaps as not as much as from China but enough to make a difference. If this outweighs the cost of lower near term tax revenue in the U.S. that is great.

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