Tax Cuts: While anti-tax cut critics in the U.S. like to say the coming tax reform won't do much for the U.S. economy, China and the major European countries are all bracing for impact. They know the tax-cutting, deregulating U.S. could be about to leave them behind.

The typical response in the U.S. from Democrats and the far-left progressive wing of that party has been dismissive of tax cuts' effect on growth. The headline on a November USA Today column by former Obama administration economic advisor Jared Bernstein pretty much sums up the left's sour attitude: "GOP tax plan won't 'unleash' economic growth. It'll make things worse."

Got that? Make things worse.

X Funny, because none of our largest global competitors seem to feel that way.

Indeed, China is in what could be described as a minor panic over U.S. tax reform. Why? China's high taxes, extreme regulations, high debt and shaky currency make it vulnerable to the $1.5 trillion tax cut that President Trump and congressional Republicans are about to unleash.

Specifically, China fears that hundreds of billions if not trillions of dollars of accumulated trade surpluses will flee the Middle Kingdom's shores to return to the U.S. to be reinvested here as the American economy takes off.

That would not only weaken China's currency, the yuan, but force China's central bankers to jack up interest rates and impose capital controls to protect it and keep inflation from ravaging the economy.

As the Wall Street Journal's Lingling Wei has reported, "What they fear is a double whammy sapping money out of China by making the U.S. a more attractive place to invest."

For the Chinese, it's so serious they're actually talking about tax reform themselves. That's right — a communist nation with sky-high taxes talking about tax reform.

Then there's the Europeans. Finance ministers from five European nations, including Britain, France, Germany, Spain and Italy last week sent a letter to U.S. Treasury Secretary Steve Mnuchin warning that provisions of the tax deal could be seen as providing unfair protection for U.S. companies vs. European ones.

"The letter highlights concerns in Europe that the Trump administration will use tax reform as a route to promote 'America first' trade discrimination, escalating tensions that have already risen in other policy areas like the environment and Middle East peace," noted the Financial Times.

But underlying the trade issue is a more real concern: Once the U.S. cuts tax rates, especially on its corporations, there will be a yuuuge new incentive to invest in the U.S. Europe, which seems stuck in stagnation and whose low-fertility welfare state becomes more burdensome by the year, could see an investment exodus as companies return operations to the U.S.

And that doesn't include the estimated $2.5 trillion in U.S. overseas corporate earnings that are now parked in European accounts because U.S. corporate taxes are so high. Once those taxes are slashed, economists say there will be a flood of repatriated capital hitting the U.S.

It will cause a major monetary and fiscal headache for European Union economic officials. They also don't like that the new tax law would "discriminate in a manner that would be at odds with international rules."

But, in fact, they use their own rules often to punish U.S. firms — such as the spurious antitrust prosecutions and multibillion dollar fines they've pursued to hamstring U.S. tech giants such as Apple, Google and Microsoft, in European markets.

The truth is, most reputable economic analyses of the tax reform come to a similar conclusion: It should raise economic growth by somewhere between 0.5% and 1% a year. Just this week, the Federal Reserve Board boosted its estimate of 2018 GDP growth from its September estimate of 2.1% to 2.5%, largely due to tax reform.

"My colleagues and I are in line with the general expectation among most economists that the type of tax changes that are likely to be enacted would tend to provide some modest lift to GDP growth in the coming years," Yellen said at her final news conference as the Fed's leader.

The Obama years of heavy regulation and a lopsided tax code that punished entrepreneurs and small businesses led to sluggish 2% growth. Thanks to tax reform, the U.S. soon may enter a 3% growth phase, one that will be the envy of all our main competitors.

Don't believe it? Just read what they're saying.

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