American Dreams by Marco Rubio Read Free Book Online Page B

it stands today, when a business calculates its taxable income each year, it is allowed to deduct only its operating expenses, like wages, materials and taxes. Investment expenses, like new buildings and machines, are treated differently. Businesses generally aren’t allowed to immediately deduct these expenses. Instead, they have to pay taxes on that money and then write the costs off over several years or even decades. The result is that the current system discourages employers from reinvesting their profits back into the business to grow it, because deductions years in the future are worth less than deductions today. Our plan would change that by allowing all companies to take a full and immediate tax deduction on all the income they reinvest in their business.
    Take the example of a business that brings in $50,000 per month, with $20,000 in basic operating costs. The owner has to decide whether to withdraw and spend the other $30,000 or to use it for investments that would grow the business, allowing it to hire more people. Under the current system, the safe thing to do is to withdraw and spend the money.
    But under our plan, the company will immediately deduct every dollar that it reinvests back into the business. By allowing immediate expensing of investments, this cash is more likely to be invested, boosting productivity and leading to increased wages and the hiring of new workers. The more a business invests, the less the federal government will get to take away.
    Our current tax system also encourages companies to keep the money they make abroad, and in many cases to incorporate abroad instead of in the United States. About 15 to 20 percent of the products made in the world are made by American companies operating overseas. We would like to see these companies bring the money they have made abroad back to America. We want them to invest their profits earned abroad to create new jobs here.
    But our current code has the opposite effect. Under our current tax laws, if they bring this money back to America, they pay U.S. tax (with credit for any taxes paid abroad). As a result, there is an estimated $2 trillion of American corporate profits sitting in bank accounts overseas. To put it in perspective, this is equivalent to the total annual size of the German economy.
    The answer is what is called a territorial tax system, under which companies are not taxed on profits brought home from abroad. The fact that the vast majority of developed economies in the world already have a territorial tax system—including all other G8 nations—has put American companies at a major competitive disadvantage. By keeping American firms competitive in the global marketplace, a territorial tax system will lead to job creation and reverse the recent trends of stagnant wage growth.

    The second challenge posed by the new economy is to preserve and strengthen America’s position as the global leader in innovation.
    In their fascinating book
The Second Machine Age
, MIT’s Erik Brynjolfsson and Andrew McAfee envision a future in which America can turn the challenges of the new economy into opportunities for better and more prosperous lives. Brynjolfsson and McAfee argue that we are at a historical technological turning point. Improvements in digital hardware, software and networks are combining to create an economic and lifestyle shift every bit as sweeping and profound as the industrial revolution.
    The possibilities are genuinely exciting. Innovations that were previously confined to episodes of
Star Trek
are being realized in rapid succession. Brynjolfsson and McAfee predict we will have autonomous—self-driving—vehicles in our lifetimes, creating millions of hours of productivity for harried soccer moms and commuters. And not only have we created a computer that can beat a human at
Jeopardy!
, that computer is now going to medical school and its diagnostic capabilities are being uploaded to the cloud for the