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FedEx's Fred Smith: 'Broken' Tax System Discourages Manufacturing Investment

How can U.S. policymakers attack the long-term trend of lower GDP growth and create jobs? FedEx Chairman and CEO Fred Smith says the answer is “very straightforward” ­reform the U.S. tax code.

“The tax system in the United States is broken,” Smith told a jobs summit organized by Sen. Max Baucus, D-Mont., at Montana Tech on Monday. “It incents financialization, leverage, private equity, speculation, excessive debt and discourages investment in manufacturing, big service companies like FedEx and UPS and all the other entities that we deal with on a daily basis.”

Smith tied the U.S.’s 35% corporate tax rate, the highest among industrialized nations, and the policy of worldwide taxation rather than a territorial tax imposed by almost all other countries to low capital investment. He said current capital investment rates reflect “replacement investment” rather than “investment for future growth.” Public investment is also suffering, he said, with the nation failing to invest enough in highways, bridges and airports.

“Underinvestment is the key factor in our inability to grow the jobs we want,” Smith told the Montana Tech audience. The U.S. has a labor participation rate of about 58%, he said, the lowest since 1978. He pointed to a lack of growth in blue collar wages and “growing disparity” in earnings capabilities. He said the great majority of jobs being created now are “part-time and low value-added” jobs.

Smith also called for improved trade agreements that do a better job of protecting U.S. interests. While promoting “open trading systems,” he said, the U.S. has been “out-traded” in most of its trade agreements and as a result suffers from a significant, chronic trade deficit.

U.S. imports of foreign oil have also contributed to low U.S. growth rates, Smith said. Since the Arab oil embargo of October 16, 1973, the U.S. has “transferred more wealth in these 40 years than any entity in history,” Smith observed. He praised recent innovations in the energy industry which has led to horizontal drilling, or fracking, and reduced U.S. dependence on imported oil. He said domestic exploration and drilling has led to “tens of thousands of well-paying U.S. jobs.

Praising Elon Musk and the “fantastic” work being done at Tesla, Smith also encouraged the development of alternative fuel sources for transportation such as electric vehicles, hybrids and natural gas-powered over-the-road vehicles. He noted that FedEx is using 500 hybrid electric vehicles and has a demonstration fleet of trucks running on natural gas.

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