Absurd U.S. Tax Policy

U.S. Tax Law Pushes American Businesses Overseas

By GARY SHAPIRO

Posted 06/14/2012

Should American businesses invest and hire overseas? The answer you get depends on whom you ask. Many Americans think businesses should only invest in America. Businesses investing abroad are called everything from "greedy" to "immoral" to "unpatriotic."

Yet, all of the American business leaders I know would rather keep most, if not all, of their operations in the United States. So why do they shift overseas?

Sometimes it's just good business. Being near customers helps sales. As U.S. economic growth has slowed and Asian economies have grown, it makes sense to invest in other, faster-growing markets.

It is also often cheaper to manufacture abroad. The time, cost and drudgery of foreign trips, and the added expense and delay of overseas shipping, are offset by lower labor and input costs. But cost savings are rarely the only reason.

Fencing Out Workers

A big factor is that U.S. laws encourage overseas investment. The United States taxes overseas income if a company attempts to invest it back in America, so businesses are incentivized to leave their foreign earnings abroad. Every company with overseas revenue faces this perverse incentive.

In addition, the U.S. not only has the world's highest corporate tax rate, but it is also one of the few nations to tax the global earnings of multinational companies based here.

Democrats often accuse American businesses of acting selfishly with regard to their overseas profits, but how are they supposed to act? Should they willingly hand over millions of dollars in taxes on income that — in their view — has already been taxed?

It's a flight of fancy to expect companies to go against their interests and the demands of their investors. Instead, the U.S. should lower the penalties and encourage companies to reinvest their earnings right here in America.

Our immigration laws also encourage investment in overseas jobs. Absurd visa limits, rules and quotas restrict U.S. companies from hiring and bringing to our nation the world's best and brightest employees. This means that much of the talent companies need to innovate and grow is living outside the U.S.

If those highly skilled workers cannot come here, then U.S. companies will go to them. So with the money companies have parked abroad, they buy or build overseas facilities and hire whoever they want.

For instance, Google maintains offices in Britain, Brazil and Canada for employees who cannot get visas in the U.S. In an in-depth 2009 New York Times article on the problem, these employees expressed that they would prefer to set down roots in the U.S., and certainly companies like Google would prefer to have them here. But our absurd visa restrictions ensure that they don't.

Lawsuits Fly

The United States also has one of the highest concentrations of lawyers among developed nations — with twice as many lawyers as in the European Union — a litigious environment, tough and growing anti-discrimination laws, a heavy pro-union atmosphere, plaintiff-favorable tort laws and an increasingly regulatory federal government. All of these factors encourage U.S. companies to invest abroad.

Despite all of this, if a U.S. company with global sales keeps the bulk of its employees in America, our laws sadly encourage a foreign company to buy it. Since non-U.S. earnings are not subject to the world's highest corporate tax rates, transferring ownership overseas saves a company's owners huge amounts in taxes.

It's crazy that our laws encourage businesses to be sold to foreign owners, but it's true.

However, all of these disadvantages to U.S. companies are fixable. Congress just has to decide that if it wants more U.S. investment and jobs, then it must start seeing business as the source rather than the greedy "one percent." This shift in rhetoric and policy requires leadership over politics and a focus on business for America rather than business as usual.

• Shapiro is president and CEO of the Consumer Electronics Association, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the book, "The Comeback: How Innovation Will Restore the American Dream."