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Democrats Can't Get Firm Grip on Jobs Issue
By Jonathan Weisman
Washington Post Staff Writer
Thursday, February 19, 2004; Page A01
Democratic presidential candidates have made the loss of U.S. jobs to international competition the centerpiece of their campaigns, but even some of the candidates' economic advisers acknowledge that remedies offered -- such as closing tax loopholes on overseas income and offering tax breaks for domestic hiring -- would probably do little to stop the bleeding.
The issue of job losses in old-line manufacturing and moving service jobs overseas catapulted to the political forefront last week, after the Democratic presidential campaigns traversed hard-hit industrial states such as Wisconsin, Michigan and Missouri. The rhetoric was further amplified when President Bush's top economist, N. Gregory Mankiw, said last week that outsourcing was "probably a plus for the economy in the long run."
Yesterday, President Bush appeared to back off projections in his own Economic Report of the President, which predicted that 2.6 million jobs would be created this year.
The movement of jobs to low-wage countries such as China, India and Mexico has been driven by powerful forces of economic globalization that may be beyond a politician's control, economists say. The two leading Democratic candidates have fallen back largely on one economic factor that Washington does control: the tax code.
Sen. John F. Kerry (Mass.) and his closest challenger, Sen. John Edwards (N.C.), both have said that tax law rewards corporate expansion overseas. And both would cut taxes for domestic manufacturing and offer temporary tax credits for hiring manufacturing workers in the United States.
"We will repeal the tax loopholes and benefits that reward Benedict Arnold CEOs and companies for shipping American jobs overseas," Kerry said Tuesday night in his victory speech after the Wisconsin primary. "Instead, we will provide new incentives for good companies that create and keep good jobs here in America."
Many economists and some business officials agree that companies are reaping tax benefits from overseas expansion. Citigroup executives told industry analysts last month that the banking firm lowered its effective tax rate from 31.3 percent to 30.6 percent last quarter, boosting income by $52 million, by putting more money into overseas operations.
The decline from a 33.7 percent tax rate in 2002 "primarily represented benefits for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested," a company document says.
But virtually no one would say that taxes are a primary -- or even a significant -- factor in the movement of as many as 300,000 white-collar jobs and many more manufacturing jobs abroad in the past several years. No matter how sweet the tax incentive is to expand in India, for instance, it could not be more enticing than lowering a software developer's pay from $60 to $6 an hour, a figure cited recently by the consulting firm McKinsey & Co.
"I don't think you can say it's the tax code that's pushing jobs abroad," said Michael J. Murphy, a tax lawyer with Sutherland Asbill & Brennan LLP in Washington.
Other factors include the emergence of well-educated, English-speaking workers, improving infrastructure in countries such as India and China, growing political stability and rapidly improving Internet, telephone and transportation links, said Larry R. Langdon, the former head of the Internal Revenue Service's large and mid-size business division.
Langdon, who was Hewlett-Packard Co.'s top tax attorney in the 1990s, recalled his company's decision to expand printer-cartridge production in Ireland, an often-cited tax haven. "We started making printer cartridges in Ireland, not because of taxes but because of wage rates. Taxes were just frosting on the cake," he said.
Another case in point is DaimlerChrysler AG's decision last week to shift its contract for Dodge Ram truck frames from a Tower Automotive Inc. plant in Milwaukee to a Mexican auto-parts maker. The decision, which will cost Milwaukee as many as 500 jobs, became an issue before the Wisconsin primary.
"I went to Tower Automotive, met with some of the employees who were about to be laid off, [saw] that vacant look," Edwards said during a debate in Milwaukee. "I will stand up and fight every way I know how to protect these jobs, including the jobs that are being lost at Tower Automotive."
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