New York Times: GOP Tax Bill “Could Actually Make it Attractive for Companies to Put More Assembly Lines on Foreign Soil”

NYT: Tax Law May Send Factories and Jobs Abroad, Critics Say

By Natalie Kitroeff

In Indiana, Missouri and Pennsylvania, President Trump used the same promise to sell the tax bill: It would bring jobs streaming back to struggling cities and towns.

“Factories will be pouring into this country,” Mr. Trump told a crowd in St. Charles, Mo., in November. “The tax cut will mean more companies moving to America, staying in America and hiring American workers right here.”

The bill that Mr. Trump signed, however, could actually make it attractive for companies to put more assembly lines on foreign soil.

Under the new law, income made by American companies’ overseas subsidiaries will face United States taxes that are half the rate applied to their domestic income, 10.5 percent compared with the new top corporate rate of 21 percent.

“It’s sort of an America-last tax policy,” said Kimberly Clausing, an economist at Reed College in Portland, Ore., who studies tax policy. “We are basically saying that if you earn in the U.S., you pay X, and if you earn abroad, you pay X divided by two.”

What could be more dangerous for American workers, economists said, is that the bill ends up creating a tax break for manufacturers with foreign operations. Under the new rules, beyond the lower rate, companies will not have to pay United States taxes on the money they earn from plants or equipment located abroad, if those earnings amount to 10 percent or less of the total investment.

[…] while companies will now have to pay some tax in most cases, wherever they operate, they will pay much less on what they make abroad than at home.

“Having such a low rate on foreign income is outrageous,” said Stephen E. Shay, a senior lecturer at Harvard Law School and a Treasury Department official during the Reagan and Obama administrations. “It creates terrible incentives.”

Mr. Shay said the new rule could make a big difference for small and medium-size companies, which make up a vast majority of American businesses. When those companies used to ask him whether to open offices abroad, he advised against it if they needed to bring their cash home.

Such companies, Mr. Shay said, now have no reason to resist the temptation to shift some of their operations abroad, since they would end up paying half the rate they would pay in the United States. […]

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