German economists are warning that the tax overhaul bill that now awaits the signature of President Donald Trump will mean that “significant amounts of new investment and jobs will shift from Europe to the United States,” according to the German business news publication Handelsblatt.
The United States has had a much higher tax rate for businesses than Germany and most of Europe. Under the tax reform bill, the corporate rate in the U.S. will fall to 21 percent, lower than the estimated 28.2 percent effective rate in Germany and close to the European average of 20.9 percent.
“The tax competition will have a new dimension,” said Christoph Spengel, chairman of the corporate tax department at the University of Mannheim. Mr. Spengel, who is also a research associate at the Center for European Economic Research, and a group of tax experts at the university have done a detailed comparison of the two countries’ tax systems and published a report under the heading, “Germany loses out in US tax reform.”
Clemens Fuest, who heads the Ifo economic think tank, also said he believed German business would suffer. “Investments and jobs will migrate to the US,” he said.
The potential capital influx could be as high as $42.29 billion, or 39 billion euros, according to Handlesblatt.
Gavin Ekins, a research economist at the Tax Foundation in Washington, argued that it is not only the tax rate that will make the US more attractive. He told Handelsblatt Global that in figuring out their “service cost,” a metric that measures the cost of capital, companies also have to consider local labor costs, regulatory burdens, and things like energy prices and the cost of land.The US has the advantage in almost every category, he noted, but until now firms were deterred by the high corporate tax.