Hobbling Exports and Destroying Jobs

June 2010

The US House of Representatives has just passed the American Jobs and Closing Tax Loopholes Act. The tax provisions of this bill will hurt American workers, reduce American exports, and make American companies less competitive in the international marketplace. Since the US Senate has already passed companion legislation, these ill-considered bills could soon be reconciled in conference and become the law of the land. If so, American firms and workers will pay a substantial price.

The tax measures would cost $14 billion over 10 years for the foreign operations of US-based multinational corporations (MNCs), say Hufbauer and Moran. They illustrate an unfortunate direction of US tax policy under the Obama administration and its congressional allies: the eagerness to tax the foreign income of US-based MNCs as if they competed only with firms that are subject to US tax rules. MNCs based in Europe, China, India, or Brazil pay far less than the US tax rate when they compete head-to-head with US firms in world markets. Studies show that plants of US multinationals are the most productive in the United States, most technology-intensive, and pay the highest wages. If US tax policy is changed so as to hinder outward investment by US MNCs, the result will be fewer US exports, and fewer exports will spell fewer US jobs.

The best bottom line for American workers-and the American economy as a whole-is to make the United States a more favorable location for American multinationals to do business. Instead of raising taxes on the foreign income of US-based MNCs, Congress should be lowering the US corporate rate to 20 percent. Other countries understand the competitive realities well enough, but Congress seems determined to turn the United States into a loser.