More feedback on Kerry’s international tax plan

Bruce Bartlett examines the Kerry tax proposals and comes away unimpressed:

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 U.S. 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 U.S. annually, thereby offsetting a significant portion of the trade deficit.

I also received an e-mail that’s worth re-printing:

I’ve worked in Operations/Supply Chain for one of those gigantic multi-nationals for almost 20 years, and I have outsourced product and services since the early 90s. I have done dozens of “Make/Buy” analyses and can recite the formulas we use almost by heart. We NEVER justify an outsourcing decision on TAX alone. In fact, I just finished a major analysis to centralize some of our far-flung operations in an region with no (read 0%) corporate tax…BUT yet, tax considerations weren’t part of the analysis. We make our decisions based on all the other reasons: labor content & costs, logistics, ability of the local supplier to generate ongoing productivity, technical skills of the local population… pretty textbook stuff. We’ll look at potential tax savings after we make our decision as “icing on the cake.” The reason is simple: tax laws change. We’d never make a major move and cause a business disruption betting on the assumption that politicians would leave things alone. So John Kerry’s plan won’t factor into our decisions at all.

Just one person’s account? Not according to Kerry’s economic advisors. From the New York Times:

Would ending deferral keep jobs at home? Or would other cost savings from going abroad – in particular, lower wages – override the loss of the tax advantage? Mr. [Jason] Furman [a Harvard-trained economist] argues that absent the tax advantage, many more jobs would stay in America, but he does not brim over with conviction on that score. “There is a conceit among people in the business community that you don’t make decisions for tax reasons,” he said. “You make them because of the underlying fundamentals and then you ask the accountant to figure out, given the choice you’ve made, how to lower the tax. I don’t think that is a rational explanation of the thinking of executives who are trying to maximize profits.”

This story has additional lukewarm sentiment from the business community. So, I’m underwhelmed — but oddly encouraged. Why? This is much less populist than I had feared based on Kerry’s rhetoric during the primary season. This is a key point of the Times article cited above. The key bits:

What is striking about the candidate’s economics team is that all of its members – not to mention nearly every adviser they are reaching out to – served the Clinton administration in one way or another…. …the fixes that Mr. Kerry and his core economic advisers are beginning to offer are clearly rooted in Clinton economics, which is resolutely centrist. Fiscal responsibility and deficit reduction, hallmarks of the Clinton years, are bedrock orthodoxy in the Kerry camp, too. So is faith in the private sector’s powers to generate prosperity. Job creation will come from corporate America, not government, once the right incentives and subsidies are in place, the war room says. In fact, the Clinton-era god of deficit reduction and private-sector supremacy is also worshiped in the Kerry camp. “This group is consulting literally daily with Bob Rubin,” Mr. Altman said. “He was the best secretary of the Treasury since Alexander Hamilton and he is the single most influential figure in business and finance.”…. The galaxy forming around Mr. Altman is particularly important. Mr. Rubin is there, of course. Lawrence H. Summers, Mr. Rubin’s successor as Treasury secretary, is consulted – although now, as president of Harvard, Mr. Summers takes no active role in the campaign.

OK, The praise of Rubin might be a bit over the top, but I find a lot of this reassuring. The fact that, as the article reports, “[this] sort of thinking does not appear to sit so well with Senator Edward M. Kennedy” is just gravy.