THE BLOG
01/28/2014 10:48 am ET Updated Mar 30, 2014

Should We Subsidize Multinationals or Repair Our Infrastructure?

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Are we better off increasing subsidies to "American" multinational corporations so they can "compete" more effectively against "foreign" multinational corporations even though that would increase their incentives to export jobs and profits, or are we better off cutting those tax subsidies and using that money to repair our infrastructure, create jobs and improve our educational system?

You would think the answer would be a no brainer, but you would be wrong. The issue of our national economic interest in Congress is not being discussed in those terms. The discussion in Congress is focused on how to help "American" multinationals by cutting their taxes, not on alternative uses of these subsidies or "tax expenditures." The reason is simple. The multinationals have waged a very sophisticated campaign to limit the discussion. Interestingly, the Chamber of Commerce, which is supposed to represent domestic businesses, has been in the forefront of this campaign even though its proposals would increase the competitive advantage that multinationals have over domestic businesses because they would be able to avoid even more of the taxes that domestic companies must pay.

The multinationals know the more complicated an issue appears to be, the less likely the media or the public will understand it. So they talk about the need for "territorial" taxation, which would only tax the profits the multinationals declare they earned in the U.S. Under various changes to our tax code being proposed by Congressional leaders now, profits multinationals transferred abroad would not be taxed at all or would be taxed at a lower rate than that paid by domestic companies. American multinational untaxed "foreign" profits exceed $2 trillion. Look at just the profits Apple or Google declared they earned abroad in the face of overwhelming economic evidence they deliberately, albeit legally, shifted profits from domestic activities using the much abused transfer pricing mechanism that the IRS admitted, even before its draconian budget cuts, it could not police.

Do the multinationals really need more incentives to shift profits offshore? Remember, both "American" and "foreign" multinationals will be encouraged to shift their profits offshore because the tax relief would apply to both. So, remind me again why this in the interest of the United States?

If you talk to any academic economist, the difference between the lower tax rates that multinationals pay, and those domestic companies pay is really a subsidy or "tax expenditure." Tax expenditures are economically identical to appropriated expenditures, except that tax expenditures are hidden and last until repealed, while appropriated expenditures must be renewed regularly by Congress. Economists would also tell you that, whether multinationals are "American" or "foreign," they will invest wherever in the world they think they can maximize their profits. So why would they invest in the U.S. where their income might be taxed when they could invest elsewhere where it would not be taxed? But no one is listening to the economic experts because that would be disruptive of the discussion the multinationals want to have about how they "need" tax relief to compete internationally and, besides, most academic economists speak a language that is unintelligible to mere mortals.

Although the tax proposals being discussed on the Hill are terrific fund raisers, because of the complexity of the issues and the number of sacred oxen that might be gored, it is unlikely that anything will be passed before the 2014 midterm elections, which means we have time to discuss the real alternatives and to educate the public and our elected officials about what is really in our country's best interest.

We need to bring the experts together with those who have the ability to translate their findings into English and to let the public know what is at stake. We cannot afford to have the Koch brothers and their "think" tanks set the agenda by, for example, calling cutting subsidies or tax expenditures "tax increases." The media, or what's left of it, must inform the public and not just reprint the propaganda spewing from front groups. The unions, or what's left of them, have to inform their members about what's at stake for them. The public interest movement, or what's left of it, must help explain the economic implications. Hopefully, when the next economic crisis arrives, which is the only time we will really see significant tax reform, we will have in hand some thoughtful solutions rather than ad hoc proposals that might do more harm than good.