lobalization is
hurting a broad group of American workers. Given a choice between paying U.S. wages and paying
workers in a developing country $1.00 an hour, companies are choosing the
latter. In some industries this trend cannot be reversed, but America cannot and should not
try to compete for those low-wage, low-skill, low-value jobs. Trying to do so
would cause us to sacrifice standards that are important to our society, such
as the minimum wage. Instead, we must seek to obtain the promised upside of
globalization: good, new jobs in high-value industries with companies that can
afford to pay U.S. wages.
But the companies
creating those choice jobs are sensitive to tax burdens. Their profit margins
are high, so tax is a major consideration in deciding where to locate their
factories, laboratories, and offices.
Unfortunately, instead of tilting the equation in
America’s favor, the outdated
U.S. corporate tax system
is helping to move those good jobs offshore.
How is the current
system broken? If a U.S. company operates
overseas through a foreign subsidiary, the income from those operations won’t
be taxed by the U.S. until that cash is
brought home as a dividend. Originally designed in the mid-20th
century to help U.S. businesses be more
competitive, this “deferral” system operates in our current global economy to
provide an incentive for companies to keep their earnings offshore and reinvest
them elsewhere. Why? Because a U.S. corporation will have
to pay a 35% tax on its profits the minute they hit the U.S. border. So when the U.S. corporation is
considering how best to expand, it considers that an investment of $100 in
foreign operations will have the same net earnings cost as an investment of $65
in the U.S. In other words, because
of the U.S. tax system, its
dollar will go farther offshore. In light of that, where would you put your
factory?
The U.S. could afford such a
system back when it led the world in technology, wealth, and the education
level of its workforce. But we can no longer afford it. We are now a debtor
nation. We have lost much of our technical lead, and we are no longer able to
retain good jobs in the face of foreign competition. Even companies that staunchly maintain their
loyalty to the American workforce are competing against other companies that
will use cheap foreign labor. Eventually they, too, must fall in line or risk
being acquired by a foreign company that can instantly make their business far
more profitable simply by moving the U.S. operations offshore
and pushing the resulting income beyond the reach of the punishing U.S. tax laws.
But what is the best
way to correct these skewed incentives?
The Shared Economic Growth proposal would fix the
broken U.S. corporate tax
system.
How?
It’s simple: by providing corporations with an incentive to distribute their
earnings to shareholders in exchange for not being taxed on those earnings
themselves, Shared Economic Growth would make U.S. operations attractive
and would encourage companies to bring home the cash they have invested abroad.
Under Shared Economic Growth, a corporation wouldn’t be penalized by the tax
code for building a plant in the U.S. instead of offshore.
In fact, the U.S. would immediately
become a preferable location over any foreign country that imposed any tax at
all. Shared Economic Growth would provide extraordinary benefits to the U.S. economy – benefits
like encouraging corporations to invest hundreds of billions of dollars in
foreign cash in our economy, helping to ensure a secure and dignified
retirement for American workers, promoting the efficient allocation of capital,
and helping to foster corporate transparency and responsibility. No other
proposal does that.
