Even the CBO Says the GOP Tax Reform Will Incentivize Corporate Offshoring

The Congressional Budget Office’s analysis of the new tax law suggests it could incentivize companies to offshore investments and jobs, which is directly at odds with GOP claims about the tax law.

After the release of the GOP’s tax reform plan, several outlets, including the Prospect, noted that new tax provisions would incentivize corporate offshoring, instead of protecting jobs and raising wages as promised. But recently, even the Congressional Budget Office, the independent entity charged with nonpartisan analysis for Congress, agreed that tax reform could encourage companies to stash profits overseas—and also offshore American jobs.

In December, House Speaker Paul Ryan published on his website that the Tax Cuts and Jobs Act benefits “job creators of all sizes” as it “Prevents American jobs, headquarters, and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, profits, and manufacturing plants abroad.”

Observers like the Institute on Taxation and Economic Policy and the Tax Policy Center pointed out that that wasn’t the case. According to the Center on Budget and Policy Priorities, the territorial tax system that Republicans have pushed for, under which only domestic income is subject to corporate taxes, represents “a massive, permanent tax advantage for foreign profits over domestic profits [that] would not help the U.S. economy.” And by placing American workers into more competition with lower-wage workers abroad, the CBPP researchers concluded, offshoring could harm U.S. wages. Reuven Avi-Yonah, professor of international tax law at the University of Michigan Law School, told the Prospect’s Justin Miller, “There will be companies who haven’t moved before who will have more incentive to do so in the future.”

Now, even the CBO has concurred, pointing out the distorted tax incentives that tax reform will allow.

Two weeks ago, the CBO published its report on the next decade’s outlook for the budget and the economy, which included an analysis of the tax reform. Buried in the 162-page report was a paragraph about the effects of tax provisions on corporations’ location of tangible assets, like investments and jobs. As the report reads:

By locating more tangible assets abroad, a corporation is able to reduce the amount of foreign income that is categorized as GILTI [global intangible low-tax income]. Similarly, by locating fewer tangible assets in the United States, a corporation can increase the amount of U.S. income that can be deducted as FDII [foreign-derived intangible income]. Together, the provisions may increase corporations’ incentive to locate tangible assets abroad [emphasis added].

Wells Fargo, a big beneficiary of the tax plan (that, like many others, is planning to reward their shareholders with their tax savings), recently laid off hundreds of call center workers in Bethlehem, Pennsylvania, moving those jobs overseas. Those jobs will be relocated to the Philippines, where Wells Fargo has added thousands of workers in the past few years.

The GOP’s tax reform may only further incentivize this behavior.

“Big companies are pocketing their windfall and shipping American jobs overseas, and the Republican Congress is rewarding them for it,” said Communications Workers of America (CWA) President Chris Shelton in a statement. CWA is concerned, as many of the threatened jobs are call center and other customer service positions. The union published a report last month about how big banks in particular will not only benefit from the massive cut in the corporate tax rate, but have been eliminating thousands of American jobs in the call center and customer service industry and shipping them overseas. In the last six months of 2017 alone, the country’s largest banks cut 8,000 jobs, according to the report.

While the tax law has increased the likelihood that other companies will mirror the job-slashing actions of banks, the moves abroad have already encountered resistance. Democratic Senator Bob Casey of Pennsylvania wrote a letter to Wells Fargo CEO Timothy Sloan and pressured him to reverse the Bethlehem job cuts, citing the $3.7 billion in tax breaks that Wells Fargo will enjoy as a result of Republican tax reform. And because of offshoring and other unsavory practices by the bank, CWA will be among the groups protesting Wells Fargo’s annual shareholder meeting on Tuesday in Des Moines, Iowa.

There’s been opposition from Democrats in Congress too. If we do indeed see anything like a blue wave in upcoming elections, legislation recently introduced in the House and Senate could be the model for a law that rolls back the effects of the tax law on offshoring. The No Tax Breaks for Outsourcing Act, sponsored in the Senate by Senator Sheldon Whitehouse of Rhode Island and in the House by Representative Lloyd Doggett of Texas, would align domestic and offshore tax rates, eliminating the lucrative tax incentives that draw companies to offshore their assets.

Without legislation like this, large corporations’ legal tax avoidance and offshoring of jobs would continue to place pressure on Americans’ jobs and wages, and also on government services that are already badly-underfunded.

In an interview with Anderson Cooper in March 2016, then-presidential candidate Donald Trump said, “We’re just shipping company after company after company is leaving this country and leaving jobs behind (sic).” And under President Trump, this trend may very well snowball.