The huge export of American jobs (some 6 million manufacturing jobs in the past decade) by U.S. corporations has become a focal point of the presidential campaign. Today, a new report from the Center for American Progress (CAP) outlines how Republican Mitt Romney’s proposals would “encourage and further accelerate the outsourcing of American jobs to foreign countries.”
While today’s current corporate tax laws offer tax incentives to firms that move jobs overseas, companies still face some U.S. tax obligations on their foreign profits. But Romney’s proposal would completely exempt all overseas profits by American companies from U.S. taxes. That would, writes Seth Hanlon, CAP’s director of fiscal reform, “exacerbate the worst features of our current tax system.” Romney’s tax-free scheme would:
- Enhance the tax code’s rewards for moving jobs and investments overseas;
- Provide a gratuitous windfall to some of the very companies that have already shifted jobs and profits overseas; and
- Further invite the offshore tax haven abuse that deprives the U.S. Treasury of tens of billions of dollars in revenue every year.
What are we talking about in windfall dollars? According to Hanlon, exempting overseas profits from tax would provide a tax cut for multinational corporations of $130 billion over 10 years. When combined with Romney’s proposal to slash the top corporate rate from 35 percent to 25 percent, which would cost more than $900 billion, it pushes the total corporate tax cuts in the Romney plan to more than $1 trillion.
Romney claims that U.S. firms would use the $1 trillion tax cut to create jobs in the United States. That’s either a naive and Pollyannaish view of corporate commitment or a cynical campaign lie. My bet’s on the latter. Here’s what Hanlon has to say.
His theory is based on the flawed belief that some of the world’s largest corporations would invest more in the United States if only they had more cash at their disposal. Yet large corporations already are holding onto near-record levels of cash—$1.7 trillion at the end of 2011—and are also able to borrow at historically low rates. Given a windfall tax cut on their foreign earnings, they are likely simply to buy back shares or pay dividends to investors.
There’s precedent for that prediction. That’s exactly what happened, says Hanlon, when Congress enacted a one-time “tax holiday” for foreign profits in 2004:
Corporations used the tax-amnestied profits for share buybacks and dividend payouts rather than investment or job creation in the United States. Many corporations claiming the tax break actually shed jobs.
The report also deals with other corporate-friendly aspects of the current tax code and how Romney’s plan would make them even friendlier (click here for the full report). In addition, it contrasts President Obama’s agenda—including the Bring Jobs Home Act—on corporate taxes to Romney’s tax swag bag for corporations. Obama proposes:
- A minimum tax on corporate profits to ensure that multinational corporations cannot avoid taxes by exploiting tax havens;
- Curtailing tax deductions that subsidize foreign investment; and
- Denying deductions for expenses associated with outsourcing jobs abroad while providing a 20 percent credit for “insourcing.”
President Obama’s international tax plan and that of his presidential rival Romney offer a clear contrast. By exempting the foreign profits of U.S. corporations from U.S. tax, Romney’s plan would reward and potentially accelerate the shift of jobs and profits overseas. President Obama’s plan, by contrast, helps level the playing field for job creation here at home.