News & Updates

Are Multinationals Evading Taxes?

9.4.2010-The National Journal

Rarely does a gift like this come along in American politics: Data show that U.S. multinational corporations are adding jobs overseas while shedding them at home, where nearly 15 million people are out of work.

Throw in the fact that firms lower their tax bills by operating abroad — and often pay lower tax rates than the struggling American middle class — and you have a combustible political mix. Thus “closing tax loopholes for corporations that ship jobs overseas” is shaping up as a pillar of the Democrats’ effort this fall to save their congressional majorities.

The refrain has already worked so well that the White House and congressional Democrats overcame heavy lobbying and GOP opposition to enact $10.8 billion in tax increases on those multinationals to help pay for local government jobs for teachers, police, and firefighters. And they might face even more pain down the road. “I don’t know how you get around this rhetoric,” conceded Catherine Schultz, vice president for tax policy at the National Foreign Trade Council, a business trade group. “It worked.”

Between 1999 and 2008, according to the Bureau of Economic Analysis, U.S. multinationals shed 1.9 million domestic jobs — mostly in manufacturing — to 21.1 million, a drop of 8.2 percent. Meanwhile, foreign employment shot up 30.3 percent, to 10.1 million workers.

In 2009, foreign direct investment had nearly tripled since a decade earlier, to $3.5 trillion. Companies parked $219 billion more of their foreign earnings abroad last year instead of bringing them home; that amount is nearly quintuple of what they kept overseas in 1999. Some of the biggest companies are also paying effective tax rates far lower than the 35 percent rate that U.S. corporations face.

Backers of the tax crackdown say that those numbers demonstrate the obvious. “They go to Mexico, they go to China, and they make things for the domestic market here and then compete against people who are still in business making things here, while gaming the tax code to do so,” said Bob Baugh, executive director of the AFL-CIO’s Industrial Union Council. “Go and look at what these people actually pay in taxes…. This is bullshit that’s got to stop.”

The reality may be a bit more complicated, as many of those jobs simply aren’t coming back.

Click here to read more at The National Journal.