Executive Council Statement | Corporate Greed · Trade

No Tax Incentives for Outsourcing Jobs

According to poll after poll, one thing that really makes voters angry is tax breaks for sending jobs overseas.  Yet too few people in Washington are interested in doing away with these tax breaks altogether.  In fact, Congress is now considering several proposals that would increase the tax incentive for corporations to shift employment and income overseas.  All too often, these proposals to make it easier to outsource jobs and evade taxes are described in misleading ways that make it hard for both policymakers and the public to understand.  In reality these proposals are nothing but big corporations once again gaming the system so working peoples’ tax dollars subsidize taking away working peoples’ jobs.

Here is the heart of the matter:  Corporate profits today are at their highest level ever, yet the corporate share of federal tax revenues has fallen more than 60% in the past 50 years.  It is grossly unfair to give multinational corporations that send jobs overseas a free pass while Congress demands repeated sacrifice from working people.   The American people want a system that rewards those who produce and employ here, not those who abandon America.

That’s why the labor movement stands for a simple and clear standard: The tax laws must not in any way encourage investment in foreign countries rather than the United States.  That means the offshore profits of U.S. corporations must be taxed at the same rate and at the same time as their domestic profits.  There is no economic or political justification for giving corporations a tax incentive to shift jobs and income overseas.

In the debate over comprehensive tax reform, Congress is considering three main kinds of tax bias for offshore investment:

  • Deferral.  The tax code currently allows corporations to “defer” paying taxes on their offshore profits indefinitely—unless and until they officially bring those earnings back to the United States.  This tax preference operates to lower the effective tax rate on offshore profits, and is an incentive for corporations to shift jobs and income to other countries.  The labor movement calls for an end to deferral.  An end to deferral would generate $583 billion in tax revenue over 10 years.  
  • Territorial tax system.  Republicans in Congress have called for a so-called “territorial tax system” in which U.S. taxes on offshore corporate profits would be eliminated entirely or dramatically reduced.  Obviously, eliminating U.S. taxes on overseas profits  would dramatically increase the existing tax incentive to send jobs overseas, and it is totally unacceptable
  • Preferential tax rates.  In the context of comprehensive tax reform, some have proposed a “minimum international tax” so offshore profits would be subject to a lower tax rate than domestic profits.  Any preferential tax rate on offshore profits is a tax break for outsourcing jobs.

These are all ways of taxing offshore corporate profits more lightly than domestic profits, and thus making offshore investment more attractive to corporations than domestic investment.

Corporations claim they need outsourcing tax breaks to be “competitive.”  But this argument confuses the interests of multinational corporations with the interests of people who live and work in America, which is the proper concern of elected officials, and feeds an international race to the bottom that would leave governments around the world without the resources needed to serve their societies.

Corporations claim that treating offshore profits the same as domestic profits would amount to a burdensome tax increase.  But this is really an argument for lowering the corporate tax rate, not for the preferential tax treatment of overseas profits.

The problem with cutting the corporate tax rate is that it costs money we cannot afford to spare.  Because corporate tax reform must generate a significant amount of revenue over the long term (not just within a 10-year time frame), there is little room for rate cuts that limit the amount of revenue that tax reform can generate.   Indeed, the real overall tax burden on U.S. corporations is lower than in most other developed nations:  The business community is offering an apples-to-oranges analysis to fuel their corporate profits in an attempt to drive their tax burden even lower.

Ending all tax subsidies for outsourcing means $583 billion in tax revenue over 10 years.  This is the amount of tax revenue that could be made available to rebuild our economy and lay the foundations for long-term economic growth by investing in infrastructure, education, manufacturing and energy.  And this is the benchmark against which any corporate tax reform proposal should be measured.

There may also be opportunities to generate smaller amounts of revenue by closing individual corporate tax loopholes on a piecemeal basis.  For example, legislation introduced by Sen. Carl Levin (D-Mich.) would make it harder for multinational corporations to shift income to foreign countries to take advantage of the preferential tax treatment of overseas profits.  The Levin bill has been estimated to generate about $220 billion over 10 years.

But there is a simpler and better solution:  End the tax bias for foreign investment so multinational corporations get no tax advantage from earning (or booking) profits in a foreign country as opposed to the United States.  As long as offshore profits are taxed more lightly than domestic profits, corporations will continue to send jobs overseas and continue to use complicated accounting tricks to make it look like their profits are earned in other countries.

There is simply no policy justification for maintaining (much less increasing) the tax incentive for outsourcing.  And according to a recent poll, nearly 80 percent of Americans favor “closing tax loopholes to ensure that American corporations pay as much on foreign profits as on profits generated in the United States.”

For all these reasons, we believe offshore corporate profits should be taxed at the same rate and at the same time as domestic profits.  This standard would require Congress to reject proposals for a territorial tax system, repeal deferral (with a per-country rule for foreign tax credits) and set a single tax rate for offshore and domestic profits.

Just as these principles should govern permanent changes to our tax code, we also believe that any proposals to allow the repatriation of overseas profits must not provide tax incentives for corporations to outsource jobs.  We are prepared to consider proposals for funding job creating infrastructure investment that meet this condition and that contain core labor standards such as prevailing wage, 13(c) transit protections, Buy America provisions, and that do not encourage the privatization of public services.