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Tax reform must get done before wages can go up, FedEx CEO Fred Smith says

  • Republicans are calling for sweeping changes to the tax code, and FedEx CEO Fred Smith told CNBC he's "optimistic" it will happen.
  • "It's got to be changed for U.S. competitiveness and to incent investment in United States because that's the only way you get blue collar wages up," he said.
  • He said a tax cut would spur FedEx to increase dividends, stock buybacks and wages.

President Donald Trump and his fellow Republicans are calling for sweeping changes to the tax code, and FedEx CEO Fred Smith told CNBC on Wednesday he's "optimistic" it will happen.

The GOP proposal, unveiled Wednesday, would lower the corporate tax rate from 35 percent to 20 percent. It also calls for reducing the rate for so-called pass-through businesses, which are currently taxed under the individual code, to 25 percent.

FedEx has an effective tax rate of 34 percent, but Germany-based DHL, one of FedEx's biggest competitors, paid 12 percent in taxes last year, Smith said on "Power Lunch."

"It's got to be changed for U.S. competitiveness and to incent[ivize] investment in the United States because that's the only way you get blue collar wages up," he said.

A tax cut would spur FedEx to increase its investments, he said.

"We put a lot of money into the business … to invest for the future. We bought a lot of shares back. We steadily increased our dividends," Smith said. "We've been able to increase our wages every year. So a tax decrease would allow us to do all of those things at greater scale."

However, the company is not factoring any tax reform into its guidance until after the legislation is signed into law "and maybe wait for a day after that just to make sure it wasn't a trick."

As for critics who say that many businesses don't pay such high rates thanks to various deductions, Smith said the GOP plan would level the playing field. For example, a tech company may be able to use various tax jurisdictions to get a low rate, but his industrial transportation and logistics company pays 34 percent, he said.

"One of the things that this tax reform package does is eliminate many, many deductions in order to have a more uniform albeit lower statutory rate of 20 percent," he said.

On the individual side, the Republican proposal calls for collapsing the current seven personal tax brackets to three: 12, 25 and 35 percent, and nearly doubles the standard deduction.

However, there is not much detail on how to pay for the plan.

—CNBC's Ylan Mui contributed to this report.