The impact of international trade

Published 11:38 am Wednesday, June 22, 2016

Currently, much of the job growth in our region and much of Virginia is coming from companies based overseas. Meanwhile, many American companies are looking outside the United States to merge with foreign companies. This sounds like a contradiction, but it is not.

It is the dilemma created by America’s outdated tax system. In the 80s, during the Reagan administration, our tax structure on business was reduced, creating the greatest expansion of business growth that lasted for 15 years.

The rest of the world saw that reducing the rate of taxation on the job producers not only created jobs, but it increased tax collections from greater business activity. Governments that understood economics began reducing their tax rates. Ireland, being one of the first, completely reversed the decline from which they had been suffering for years. Others followed suit.

However, other countries were smart enough to understand that simply matching the United States would not be enough. Instead, they have leapfrogged Washington. Currently, the U.S. has the highest corporate tax rate in the developed world.

Consider the Burger King company. A couple of years ago they were in the headlines because they merged with a much smaller restaurant company in Canada and announced that they would be a Canadian company and corporate headquarters would be located there.

Another example is the Pfizer drug company. They too made the corporate decision that the best policy for their corporate stockholders was to merge with a much smaller Irish company, Allergan.

They have, for the time being, decided to delay that decision. However, for them to remain competitive and maintain their market share and keep their factories fully employed a change must take place.

Pfizer paid approximately $3.1 billion in taxes on its 2014 income at a rate of 25.5 percent. Ireland’s rate is about 17 percent. Under Ireland’s rate, the company would have increased its profits by just over $1 billion. There were no plans to move any manufacturing jobs or close any production facilities. All their production would have remained the same.

What would have happened is that Pfizer would have become more competitive in the drug market, resulting in some combination of the following: Increased production and employment, lower drug prices, better compensation for employees and greater value for stockholders.

Our current tax policy has resulted in some major American companies, such as Microsoft and Apple, holding many billions of dollars in other countries rather than returning those dollars to this country to avoid our tax structure.

If this or the next administration in the White House takes the action that President Ronald Reagan did — reducing our tax rates — several things would be accomplished.

Our next president must understand the dynamics of a growing economy. Clearly America is a good place to do business. Now is the time we should give American companies the opportunity to employ more citizens here.

Frank Ruff, a Republican, represents Lunenburg County in the Virginia State Senate. His email address is