The indispensable contribution driving investment back home to the United States will have to be penalizing foreign investment's income and rewarding long term domestic investment's income through the tax code, which also means dramatically raising ordinary income tax rates. In other words, returning to the status quo ante-Reagan.
The reason is we have learned that rich people don't know what's best to do with their own money any more than the rest of us do. The rich have not done what's best for the country. Ronald Reagan was completely wrong about that. They took one look at the quick and easy money and immediately started looking to maximize it elsewhere. The tax code used to force them to do the right thing, which was keep it here and invest at home if they wanted to get richer. And that is what made all of us richer, with jobs with which we could afford to marry, buy houses and cars, raise children and send them to college.
People who got rich through Reagan's low ordinary income tax rates fell for the cheap labor abroad to get even richer, but now here they and we sit together beholden to countries abroad who are hostile toward us.
The chart below shows how domestic investment dominated foreign throughout the post-war until the Reagan tax reform of 1986. Investment abroad did not overtake domestic until 1993, at 105% of private fixed investment, after the Reagan tax cuts had taken full effect. Foreign as a percentage of domestic investment is double that and more today. For every four dollars invested at home in 2024, eight were invested abroad.
It took decades to screw this up, and it will take decades to fix it. But as sure as I'm sitting here neither J. D. Vance nor Donald Trump nor any other politician out there has any clue about this.
