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Policy Brief 10-13

Hobbling Exports and Destroying Jobs

by Gary Clyde Hufbauer, Peterson Institute for International Economics
and Theodore H. Moran, Peterson Institute for International Economics

June 2010

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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.


RELATED LINKS

Policy Brief 11-16: US Tax Discrimination Against Large Corporations Should Be Discarded October 2011

Policy Brief 11-2: Corporate Tax Reform for a New Century April 2011

Policy Brief 10-10: Higher Taxes on Multinationals Would Hurt US Workers and Exports May 2010

Testimony: Tax Reform and the Tax Treatment of Debt and Equity July 13, 2011

Book: US Taxation of Foreign Income October 2007

Book: Reforming the US Corporate Tax September 2005

Op-ed: America Badly Needs a Value Added Tax April 21, 2005

Paper: Tax Policy in a Global Economy Revised February 2000