Tax Law Incentivizes Factories to Leave U.S.

Exactly a year ago this month the Tax Cuts and Jobs Act (TCJA) was passed, and even then BC Law Professor James Repetti ’80 was shaking his head. He knew there would be unintended consequences.

Sure enough, in an op-ed this week in The Hill, Repetti begins a slow reveal of troubling issues with the law. First up is the harm the TCJA is doing to US manufacturing jobs.

Repetti writes that despite supporters’ claims that the bill would provide incentives to keep factory operations in the US, the law, in fact, contains three provisions that do the opposite: They encourage US companies to pull their factories out.

“As I pointed out when TJCA was passed, the push by Congress to adopt a complicated tax overhaul to meet an arbitrary political deadline was irresponsible,” Repetti said in an interview. “The hurried manner in which Congress adopted TJCA was bound to lead to many unintended consequences. We’re starting to see real world examples of these consequences now. Congress needs to eliminate the incentives contained in TJCA that encourage US corporations to move their factories abroad.”

Repetti says that his research is suggesting other negative consequences of the law and cited four of them.

1. The looming deficit created by TJCA is already starting to worry the Federal Reserve Bank and has encouraged them to start to increase interest rates.
2. Section 199A (the new 20% deduction for certain types of business income) disfavors S corporations, which are the simplest tax-favored entities available to small businesses.
3. The inability to deduct expenses incurred in a profit-seeking activity that has not risen to the level of a trade or business discourages entrepreneurial activity.
4. The elimination of personal exemptions hurts families with children.

Repetti is the William J. Kenealy, SJ, Professor at Boston College Law School. He is author of a number of influential articles on taxation and is co-author of Partnership Income Taxation, Introduction to United States International Taxation, Federal Wealth Transfer Taxation, and Problems in Federal Wealth Transfer Taxation, among others. A cofounder of the BC Law Tax Policy Workshop, Repetti has also acted as a consultant to the US Senate, Internal Revenue Service, and Justice Department.