The regulatory rollback has a direct impact on the financial services industry as federal agencies continue to work on various incarnations.
Tax Reform
With the passage of the Tax Cuts and Jobs Act in December 2017, tax reform has become another bright spot for the U.S. economy, said Holtz-Eakin, particularly in its treatment of corporate earnings and overseas assets. Under the previous tax code, U.S. corporations were taxed in a worldwide system that made them less competitive and created incentives for tax delays and deferrals that prevented the IRS from collecting revenue.
Companies with overseas earnings faced the possibility of those funds being taxed twice, once in the locale that the profits occurred, and again when the profits were brought back to the U.S. The system encouraged multinational corporations to keep their earnings offshore and to build their headquarters out of the U.S.
“The reform changed all of that,” he said. “Corporations now pay a 21 percent rate, which is right in the middle of the competitive world.”
Changes to taxes applied to pass-through entities and individuals should also help to increase productivity and wages, said Holtz-Eakin.
A common criticism of corporate tax reform is that it merely encourages companies to buy back their stock or pay special dividends, which Holtz-Eakin argued is a desirable outcome.
“The cash doesn’t go into a black hole or go out of the financial markets,” he said. “It’s a good thing to get money out of the company that has poor investment opportunities and put it into the hands of someone who has good opportunities.”
Trade Reform
While the Trump administration has been successful in applying regulatory and tax reforms, there are other areas where Holtz-Eakin was outspoken about the administration’s shortcomings: notably, trade.