At the start of his presidency, Donald Trump invited a number of America’s leading business executives to serve on two new advisory boards: the Strategic and Policy Forum, devoted to providing the Trump White House with advice on economic issues, and the Manufacturing Jobs Initiative, which focused more narrowly on the president’s plans for an industrial revival. Though there’s nothing unusual about having corporate America’s leading lights serve on such boards, which have been around for ages, the fact that Trump was able to persuade so many of them to sign up in the wake of his controversial campaign seemed a reassuring sign, especially to jittery investors. If the chief executives of PepsiCo, General Motors, IBM, and other corporate giants were willing to do business with the new administration, surely all would be well.
That’s not quite how things have turned out. Almost from the inception of these advisory boards, members have been wrestling both publicly and privately with the propriety of serving on them. On February 2, less than two weeks after Trump’s inauguration, Travis Kalanick, who was then the CEO of Uber, resigned from the Strategic and Policy Forum to protest the president’s temporary visa freeze on a handful of Muslim-majority states, better known as the “Muslim ban.” Given Uber’s various PR woes and its heavy reliance on immigrant drivers, this shouldn’t have been too surprising. Distancing himself from Trump was an easy way for Kalanick to score points with his many detractors on the left.
Something similar could be said of Elon Musk, the celebrated tech visionary behind SpaceX and Tesla, and Bob Iger, the chief executive of the Walt Disney Company, a sprawling media conglomerate, both of whom parted ways with the Strategic and Policy Forum on June 1, just after the president decided to withdraw from the Paris climate accord. Silicon Valley and Hollywood were never on the Trump train, so one could dismiss their departures as little more than posturing. After the Charlottesville incident, however, it became clear that just about all members of both advisory boards were rushing for the exits. Seeing the writing on the wall, Trump disbanded them both.
There is a case for simply saying good riddance to the advisory boards and all that they represent. Most of the corporate chieftains who agreed to serve as part of the Strategic and Policy Forum and the Manufacturing Jobs Initiative did not do so out of any affection for Donald Trump. Rather, they presumably recognized the value of having the ear of the president, or at least one of his underlings, since it could mean influencing the country’s policy direction in ways that would serve the interests of their shareholders. When it became clear that associating with the Trump administration was proving too costly to their reputations and those of their companies, the CEOs bolted. Fair enough. Then, of course, there is the cultural dimension. As the country’s educated professionals grow more socially liberal, it’s hardly surprising that corporate elites would follow. Perhaps a divorce between the GOP and corporate America was inevitable, Trump or no Trump.
But there’s another way to look at the dissolution of Trump’s advisory boards, which is that it gives the Right an opportunity to rethink its relationship to Big Business.
By all means, business executives should do their best to serve all of their stakeholders, whether they reside in Columbus, Ohio, or in Kuala Lumpur. As far as U.S. policymakers are concerned, however, the essential question ought to be whether a given business is serving the interests of the American people broadly understood.
Right now, our chief interest should be in boosting productivity growth. From the end of the Second World War to the start of the Great Recession, real GDP per capita in the U.S. has grown at an average of 2.5 percent a year. Since 2007, it has grown a mere 0.6 percent a year. Just about every challenge facing American society would be much easier to meet if the U.S. grew at even half the rate it did in decades past.
Viewing matters through this lens, we can’t really speak of a single, monolithic corporate America united around a single “pro-business” agenda. Rather, we have innovative, high-growth companies that contribute to rising productivity by investing in their U.S. work force, alongside a growing number of corporate dinosaurs that are content to exploit cheap credit and cheap labor to keep their broken business models afloat.
Consider the ongoing debate over corporate-tax reform.
House speaker Paul Ryan and his allies are pushing hard for corporate-tax reform to include “full expensing,” which would allow businesses to deduct the entire cost of their investments in the first year instead of depreciating them over a longer period. Others, including most members of the House Freedom Caucus, would rather pursue deep cuts in the corporate tax rate but leave the current law’s depreciation schedule intact. There’s no way to do both without massively increasing the federal deficit, so lawmakers are duking it out over the kinds of companies that should come out ahead.
Businesses that intend to make significant new capital investments — firms building massive fulfillment centers, manufacturers that rely heavily on high-tech equipment, and fast-growing start-ups — are far more inclined to back full expensing, for the obvious reason that it would greatly ease the burden of expanding and upgrading their operations. In contrast, established firms that have no intention of making new investments, or that have more labor-intensive business models, are adamantly opposed to full expensing if it means giving an inch on the corporate tax rate.
Narrow though this debate might seem, the direction Republicans choose to take on tax reform will have profound implications for America’s economic well-being. To the partisans of an overall rate cut, full expensing is nothing but a sop to high-investment businesses. Why should we prioritize their needs over those of other firms? But if our goal is to raise productivity, there’s no question that we ought to encourage firms looking to invest in new, more advanced equipment rather than reward companies for investments they made ages ago — not least because doing so would likely boost growth in wages and incomes over the long haul.
We see a similar dynamic at work in the debate over the tax treatment of the profits U.S. firms earn overseas. The U.S. government, and in particular U.S. trade negotiators, do a great deal to protect the interests of U.S. multinationals, regardless of whether those companies deign to return the favor by reinvesting in the U.S. economy. But that’s hardly the fault of corporate executives. The real problem is that, as it stands, the U.S. corporate-tax code gives U.S. multinationals a perverse incentive not to invest at home.
At 35 percent, the statutory U.S. corporate income-tax rate is among the highest in the world, so naturally U.S. corporations do what they can to avoid paying it. Many U.S. multinationals achieve this by shifting their operations to overseas tax havens, where they can defer paying U.S. taxes on their foreign earnings indefinitely, so long as they never use their foreign profits to invest in the U.S. Needless to say, this is a perverse result. One would hope that when U.S. multinationals expand their businesses abroad, at least some of the resulting profits would make their way back home — ideally to be reinvested in domestic operations, which could then be a source of high-wage, high-productivity employment. When the Apples and Alphabets of the world keep their profits locked up in Ireland, however, this simply doesn’t happen.
While this might sound like a niche issue, it goes to the heart of what we might call the “globalization bargain.” As Brad Setser of the Council on Foreign Relations has observed, one of the central arguments for embracing free trade is that while doing so will inevitably create winners and losers, the gains are more than big enough to make up for the losses in aggregate terms, and government’s role is to help ensure that the losers are adequately compensated. That’s hard to do if the winners from globalization shift their most valuable intellectual property to lightly taxed foreign subsidiaries to get out from under the IRS.
Conservatives tend to support moving to a territorial tax system, in which U.S. multinationals would no longer have to pay U.S. taxes on money earned abroad, yet they’d be free to plow the profits back into their U.S. operations. This is also the position favored (not coincidentally, I’d venture) by most U.S. multinationals. The danger, however, is that under a territorial system, U.S. multinationals would have good reason to move all of their taxable operations out of the U.S. and into tax havens.
As an alternative, Congress ought to consider adopting a global minimum tax, under which foreign earnings would be subject to a specified tax rate — 17 percent, let’s say. Companies that have already paid 17 percent or more in corporate taxes to a foreign government would be free to bring the rest of their profits back to the U.S. tax-free. Those that have paid less would have to pay the difference to the U.S. Treasury. Essentially, the global minimum tax would punish U.S. multinationals that go abroad primarily to dodge U.S. taxes while leaving all others — the ones that are doing their part in the globalization bargain — pretty much untouched. Moreover, the revenue from a global minimum tax could finance tax cuts elsewhere, including a move towards full expensing.
If Congress were to adopt a corporate-tax overhaul that helped increase the gains from globalization while spurring a domestic investment boom, it would be an achievement for the ages. Donald Trump could happily claim credit, and soon the CEOs would come flocking back to the White House.