I think of the weirdest things when I am running.  This just came to me and I’m surely missing something so please read through this and tell me why this won’t work.

Problem Statement

Companies legally avoid paying corporate taxes many ways but one of the more popular methods is moving manufacturing outside the US.

Granted there are other reasons why companies move manufacturing to a foreign country and many of these reasons make sound business sense and are just a nature of the Global Free Market.  My proposal below will not move all manufacturing locations back to the US and I believe that forcing companies to go against Market forces is bad so I’m not advocating that.  Market forces are not involved when a corporation has no option but to flee the US because of a Federal tax code that is anti-business and I’m proposing that we can stop this flight of manufacturing jobs from the US.

My Proposal

I think I have a way to remove the ‘stick’ the IRS uses to force corporations out of the US and replace it with a ‘carrot’ that will entice businesses to move manufacturing back to the US and level the playing field when it comes to corporate tax rates with other countries.

My proposal will move some of these jobs back to the US, stimulate the economy, lower corporate tax rates and increase Federal tax revenue.

Sound too good to be true?  Well, it does to me too but for the life of me I can’t think of a reason this won’t work.

Without further delay, here is my proposal:

Congress shall pass a law stating – A corporation will pay a 0% Federal tax rate on profits from products and/or services that are manufactured and/or generated in a US facility that is constructed or commissioned in 2014 and beyond.

There it is.  If you start up a new operation in the US anytime in 2014 and beyond then you’ll pay NO Federal taxes on profit from that location….forever.

To me, this plan has zero risk as far as the Federal Government is concerned.  Right now corporations are avoiding tax payments by having operations outside the US so having these companies move these operations back to the US and still pay no taxes on their profits from these facilities doesn’t reduce the amount of tax revenue Uncle Sam currently receives.

But in reality this proposal will INCREASE Federal tax revenue because these new US facilities will hire people who will earn a paycheck and pay taxes to the Federal Government (taxes they are not currently collecting).  Not to mention the fact that our budget deficit will shrink due to a reduction in outlays from Welfare and other entitlements as the unemployed or under employed grab some of these full time jobs.

And don’t forget the ripple effect of more people in the workforce buying things in the Market which will increase other revenues for other industries (which will increase the tax revenues these other industries pay).  Now this is what I call a real stimulus that doesn’t require shovel readiness.

This proposal can also help reduce healthcare costs since more people having full time jobs and participating in employer sponsored health care plans will allow for more preventative care and fewer emergency room visits and high cost, catastrophic medical procedures.

This proposal also appears to have enough red meat in it for both sides of the aisle and therefore can be pitched as a win-win for both the Left and the Right.

Conservatives will like this proposal because it is pro-business and reduces corporate tax rates.

Liberals will like this proposal because Federal tax revenue will increase.

Both sides should be in favor of decreasing the unemployment rate, removing the number of people on welfare and stimulating the economy.  That’s a nice message for Congressional representatives to take back to their districts!

But Seriously, this sounds too good to be true.  Why hasn’t Congress already passed a law like this?  What am I missing?  Please show me why this can’t work.

Addendum – For further reading on the subject, here is a link to a report from Pennsylvania Senator Pat Toomey outlining the damage done to US businesses due to our high corporate tax rate.