Last Friday, John Kerry unveiled his long-awaited economic plan -- one that he says will create 10 million new jobs in the United States. It's an extraordinarily unambitious plan, one that relies primarily on two tax gimmicks of dubious value. One would penalize U.S. companies with foreign operations to pay for a cut in the corporate tax rate. The other would revive a discredited job subsidy plan that has been tried before and failed.
There are many problems with Kerry's plan to tax the unrepatriated overseas profits of U.S. companies. The main one is that few other countries tax the foreign profits of their companies at all. Consequently, U.S. firms are already at a competitive disadvantage tax-wise. Kerry's plan would make the situation worse, encouraging U.S. companies to reincorporate in other countries.
As far as jobs are concerned, the Kerry plan probably would reduce employment in the United States. That is because a very considerable amount of exports go from U.S. businesses to their foreign affiliates. And, contrary to Kerry's implication, the bulk of earnings on sales by foreign affiliates are repatriated to the United States annually, thereby offsetting a significant portion of the trade deficit.
According to the Commerce Department, in 2001 (latest year available), U.S. companies exported just over $1 trillion worth of goods and services. Of this, $230 billion went to their foreign subsidiaries. In addition, U.S. companies earned $124 billion in profits on their foreign operations. In effect, the trade deficit is reduced by this amount. When the operations of U.S. affiliates of foreign companies are netted out, the Commerce Department found that the trade deficit was reduced from $358 billion to $251 billion in 2001 by the operations of the foreign subsidiaries of U.S. companies.
These are important factors because exports add to U.S. economic growth while imports reduce it. Also, U.S. multinational companies are a major presence in the domestic economy, with internal sales of $2 trillion in 2001 and employment of more than 23 million Americans. Kerry is simply making them scapegoats for slow employment growth in the United States that they have nothing to do with. Imposing tax penalties on them is not going to create more jobs here, but more likely will reduce their exports and the employment it supports.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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