The folks over at Third Way - a corporate-backed "think"-tank that claims to be aligned with the Democrats - have put out an anti-Buy America "memo."
Besides raising the tired bogeyman of foreign retaliation and the misleading claims about WTO compatibility, they propose providing "a bonus R&D tax credit that significantly rewards companies based on the percentage of their manufacturing and production that occurs in the United States. This would entice companies to conduct research here and produce here. It would not violate international laws."
Not a bad idea, but unfortunately the Bush administration has pushed to expand the WTO coverage of U.S. R&D measures, which could limit our policy space in this area and something that the Obama administration must act on to reverse.
Third Way also proposes decreasing the taxes that multinationals have to pay on their profits earned overseas. While the group claims that this would entice the big boys to generate U.S. jobs, a comprehensive Congressional Research Service analysis found that the opposite occurred when the same policy was enacted for a year in 2005-06. According to the Washington Post:
A more recent analysis in January by the nonpartisan Congressional
Research Service looked at 12 companies that returned significant sums
to the United States. Of those companies, at least eight had cut jobs
by 2006. Pfizer, for example, received a significant tax break on $37
billion returned to the United States -- more than double the amount
returned by any other company -- but cut 10,000 jobs in 2005, according
to the CRS report.
"Empirical analyses of the stimulative effects of the repatriation
provisions . . . suggests a limited stimulative impact from the
provisions," the report says. "They conclude that much of the
repatriated earnings were used for cash-flow purposes and little
evidence exists that new investment was spurred."
Meanwhile, the nonpartisan Joint Committee on Taxation estimates
that the tax holiday produced an initial flood of cash in 2005,
increasing tax collections by $2.8 billion. But because some of that
money would have been returned to the United States anyway -- and at a
much higher tax rate -- congressional tax analysts predict that the
2004 holiday will cost the government $3.3 billion in lost revenue by
"Uncle Sam missed out on billions in needed tax revenues," Levin
said yesterday. "Such tax holidays not only reduce U.S. tax revenue in
the long run, but create new incentives for U.S. multinationals to send
more jobs, funds and facilities offshore."
I got a chance to look at the report, and here's what the CRS said about the 2005-06 program, citing IRS statistics:
The benefits of the repatriation provision are not evenly spread across industries. The pharmaceutical and medicine industry accounted for $99 billion in repatriations or 32% of the total. The computer and electronic equipment industry accounted for $58 billion or 18% of the total. Thus these two industries accounted for half of the repatriations. Most of the dividends were repatriated from low tax countries or tax havens.
The benefits were also highly concentrated in a few firms. According to a recent study, five firms (Pfizer, Merck, Hewlett-Packard, Johnson & Johnson, and IBM) are responsible for $88 billion, over a quarter (28%) of total repatriations. The top 10 firms (adding Schering-Plough, Du Pont, Bristol-Myers Squibb, Eli Lilly, and PepsiCo) accounted for 42%. The top 15 (adding Procter and Gamble, Intel, Coca-Cola, Altria, and Motorola) accounted for over half (52%).
At least Third Way proposes putting some conditions on the multinational tax cut. But their overall take on Buy America is out of step with the party. As Inside U.S. Trade reported today,
House Transportation and Infrastructure Committee Chairman James Oberstar (D-MN) warned today (Feb. 4) in a House Steel Caucus meeting that he would actively work against the passage of the stimulus package if the “Buy America” provisions are removed.
“If it's not in, I'm against this package. Can I be any clearer than that? If it's not in, I'm not supporting it and I'm bringing a lot of votes with me,” he said. “We can't have any of this fluff about being nicey-nicey on foreign trade at time when we're trying to create jobs at home and to have foreign steel come in here and undercut U.S. jobs? No way, not with my help.”
In short, while Dems are running government thanks to a fair-trade platform, the Corporate "Dem" think-tanks are spouting the same old snake oil that got us into this economic mess.