The Herald-Leader will routinely check the accuracy of statements made by candidates and their surrogates leading up to the Nov. 6 election.
By John Cheves
The statement: “My opponent wants tax breaks for companies that ship jobs overseas.”
— U.S. Rep. Ben Chandler, D-Versailles, in a television commercial
The ruling: Half true
The facts: Chandler, who faces Republican challenger Andy Barr in Tuesday’s election, says Barr wants tax breaks for companies that ship jobs overseas. Barr has not called for exactly that sort of tax break, but he supports changes to the tax code that would have that practical effect.
Barr and many other Republicans support a proposed tax break that can be found most prominently in the budget plans of House Budget Chairman Paul Ryan, R-Wisc., the GOP vice presidential nominee.
Ryan’s budgets would create a “territorial tax system” in which the United States only could tax corporate income earned inside its borders. This would allow U.S.-based multinational corporations to claim the profits they earn abroad without paying additional taxes to Uncle Sam, as they currently must. They still would pay taxes to their foreign hosts, usually at lower rates.
Republicans say a territorial tax system would encourage U.S. corporations that operate abroad to bring income home and spend it on domestic projects, rather than try to shield it behind foreign borders. This would create U.S. jobs, Republicans say.
“The international average corporate tax rate is 25 percent. We are the highest now at 35 percent. So we are literally pushing capital overseas,” Ryan told American Business Magazine last year. “Let’s make this country a tax shelter for other countries instead of having other countries be a tax shelter for America. This would ultimately raise revenues and promote economic growth.”
Barr agrees with Ryan. In his campaign platform, Barr says he would “eliminate the corporate tax on repatriated profits for American companies since those profits are used to make new capital investments.”
Democrats, including Chandler, tend to oppose this proposed tax break. They say it would encourage U.S. corporations to ship more of their operations — and jobs — to developing countries with cheaper tax rates.
The proposed tax break would make foreign shores more attractive to U.S. companies, according to one recent analysis.
“In 2008, U.S. multinational firms employed 10 million workers in affiliated firms abroad. Under a territorial tax system, the tax incentive to locate jobs in low-tax countries would increase significantly, and I calculate that this would increase employment in low-tax countries by about 800,000 jobs,” economist Kimberly Clausing of Reed College in Portland, Ore., wrote in a research paper published in July in Tax Notes. “These new low-tax country jobs could displace jobs at home.”
Other economists say Clausing’s analysis is too simplistic, noting that the tax break could create jobs at home as well. Republicans like Ryan and Barr usually pair the tax break with a proposal to drop the top corporate income tax rate from 35 percent to 25 percent, which would make the United States a more hospitable to do business, these economists say.
“Claiming that Clausing’s study finds that the U.S. would lose 800,000 jobs under a territorial system is disingenuous at best. Clausing’s analysis must be read within context, and that context is the implausible scenario of the U.S. implementing a territorial tax system without lowering its tax rates,” research fellow Philip Dittmer wrote in July for the Tax Foundation, a pro-business think tank.
Campaign Watchdog finds Chandler’s claim to be half true. Barr does want a tax break for U.S. corporations operating abroad, but he does not specifically call for a tax break to reward the exporting of American jobs.