Foreign direct investment in the U.S. has fallen from 37 percent of the global total in 2000 to 19 percent in 2013, a decline of nearly 50 percent, according to the United Nations Conference on Trade and Development 's 2014 World Investment Report.
The cumulative total of net foreign direct investment (FDI) in the U.S was $3.3 trillion as of Sept. 30, 2014, according to the Federal Reserve, an annual average of nearly $48 billion since 1945.
At the end of the first quarter in 2014, FDI plummeted $732 billion, from $302 billion to negative $430 billion, using a seasonally adjusted annual rate, the Fed notes. The recent surge in the U.S. dollar might further dampen foreign capital inflows, since it requires more local foreign currency to purchase a U.S. dollar.
Direct investment — domestic and foreign — is critical to economic growth, because it promotes the productive use of capital and labor. Financial investment has much less impact on the real economy in terms of employment and growth, since it is strongly driven by arbitrage and speculative strategies.
The White House has organized an effort to promote FDI, called the Select USA initiative, which generated about $7 billion of direct investment in 2013.
The principle reason for low investment in the U.S. is an ineffective and inefficient tax code, which contains high rates for many and opaque benefits for few.
Corporate tax rates in the U.S. are roughly 10 percentage points greater than it is for many of its foreign counterparts. In addition, domestic investment lags, since personal tax rates
are lower than corporate tax rates are at most levels of income, causing less capital to be retained at the corporate level.
Warren Buffett recently escaped about $1 billion in capital gains taxes by exchanging $4.7 billion of Procter & Gamble stock for P&G's Duracell battery business, along with a $1.7 billion cash infusion in a cash-rich split-off transaction. His enterprises also have nearly $62 billion in deferred taxes that have not been paid yet.
My tax reform plan
would provide incentives to increase domestic and foreign investment that would stimulate productivity and growth by instituting low, transparent tax rates for virtually all income and assets in a cost-effective manner. This would save hundreds of billions of dollars in tax compliance costs, which would limit price rises, increase disposable income and foster greater investment and employment.
Under this proposal, the median household earning $50,000 of annual income with $100,000 of liquid financial assets, would pay a maximum of $5,000 in federal taxes, or 10 percent of income. For those at or near the federal poverty level with no assets, the tax bill would be zero. Families making $100,000 a year with $200,000 of liquid financial assets would see a maximum bill of about $12,000, or 12 percent of gross income.
This plan has been described as responsible, compassionate and elegant in its simplicity by wide swaths of the political spectrum.
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