The AFL-CIO, the nation's best-known union, has come out swinging against adoption of tax rules that would encourage "repatriation" of foreign-earned corporate income.
This opposition is consistent with a view that corporations are evil and should be hurt in every possible way. But it is inconsistent with U.S. jobs creation and the ability of companies, unions and governments to meet pension obligations. Simply put, repatriation is a simple, no-cost solution to some problems and can be leveraged to directly create American jobs.
To begin with, repatriation is a name for a proposal to allow a lower tax rate for a defined time period for U.S. companies seeking to bring money earned overseas back into the United States. It is a tool of government that allows pumping up the U.S. economy at no cost to the government. It works because of a unique aspect of how our nation treats corporate earnings.
Under American law, U.S. corporations with overseas earnings pay taxes where they make their money overseas. And then if they bring the money back to the United States, they are further taxed (paying the difference with the higher U.S. tax rate as the United States has the highest corporate tax rate in the developed world). Naturally, this encourages American companies with overseas earnings to leave their earnings overseas.
Given this tax treatment, U.S. companies are perversely incentivized to invest that money overseas. This encourages them to build foreign facilities and hire foreign workers. Added to the U.S. litigation culture, the difficulty in hiring the best and brightest from around the world and the increasingly hostile attitude to business, it is not surprising that companies build overseas, and we have an unemployment rate of nearly one in five American adults.
Most estimates project there is more than a trillion dollars in overseas earnings that could be repatriated. A Democratic Congress and President Bush approved repatriation in 2006. It worked well and pumped money into the economy and into the U.S. Treasury. While some complained that many companies simply increased dividends, it definitely stimulated the economy.
Moreover, repatriation increased government revenue as taxes were paid (albeit at a lower rate) and even if companies used it for dividends - these dividend payments were taxed when paid out to taxpaying investors. It costs nothing as the government would never see that money absent repatriation and did create direct and indirect revenue to the U.S. Treasury - 10 percent of a trillion is better than 39 percent of nothing.
So why oppose repatriation as a solution to stimulate the economy? I am baffled at the attitude of unions such as the AFL-CIO who seem to try to cripple jobs creators at every turn. How can one claim to want American jobs while acting like they hate job creators?
The AFL-CIO is the example I follow because every day they send me their blog with what I consider to be anti-business rants. Until AFL-CIO President Richard Trumka took over last year, I was able to comment on the AFL-CIO blog and provide a jobs-creator view on many issues where business was unfairly attacked. It was gratifying to see how many rank-and-file union members agreed with me in response.
But since the AFL-CIO violated its own rules and installed a president who had pleaded the Fifth in a criminal investigation, I have been denied the ability to comment, despite having tried many times. Sadly, the entire AFL-CIO blog now contains only the opinions of those who agree with the union positions.
For example, the story referenced above was followed by seven comments (I tried to submit twice and was blocked). All the comments either attacked Republicans and corporations or suggested a certain amount of nastiness:
"put these corporations out of business," "...known as un-American activities and just like the commie hunt of the 50s they should be black-balled and their profits from such activity should be seized," "They can take a hike...out of our country!," "should be seized by the government and converted to publicly owned and operated entities."
Such positions are not limited to the rank and file. Steelworkers Union President Leo Gerard wrote on the AFL-CIO Blog:
"The nation's greedy corporations and insatiable wealthy are fattening themselves on workers. There's no trickle down. It's the opposite; the rich have been sucking the economic lifeblood from the middle class for decades."
What is simply foolish about this union led anti-corporation sentiment is that it is not only bad for the jobs in America, it also is bad for America and the unions themselves.
The Wall Street Journal recently reported that major state pension funds assume close to an eight percent return on their investments - ironically most of which are in U.S. corporate stocks and bonds. This is dubiously high, and the union rank-and-file (depending on this assumption for their pensions) should be cheering for the stock market success of these same publicly traded companies.
In my view, even if we took all the profits of the Fortune 500 companies and took all the money from America's 500 wealthiest people, and took the entire income of all Americans greater than $250,000 annually plus stopped funding the Iraq and Afghanistan wars and stopped all foreign aid, we would not cover the 2011 deficit, much less begin to pay off our debt.
A clever, vivid approach to this mathematical exercise reveals the depth of the problem. It is worth 10 minutes of every American's life to understand the serious nature of this problem.
Even if unions foolishly don't care about the stock that is being relied to pay their pensions, they say they care about U.S. jobs. Yet it would be the easiest compromise for Democrats and Republicans to agree that only those companies who add jobs or make incremental U.S. investments could benefit from repatriation. Some legislators are working on this compromise but absent the union blessing, Democrats are unlikely to proceed.
The entire assumption behind the union approach is that if only the rich paid more in taxes, our budget crisis would be solved and we could continue to fund the defined benefit pensions that are the backbone of the union demands. I implore the union leaders to candidly address the issues and allow another point of view on their blogs. We have to stop the "business is the enemy" attitude that now pervades America. We are headed towards national failure as we finger point and blame. Repatriation is the easy issue.
Democrat Erskine Bowles, co-chair of the bipartisan deficit commission, calls the deficit "the most predictable economic crisis in history" and warned the debt is a "cancer, which will destroy this country from within." Unions, businesses and all Americans can no longer deny that we are in trouble.
We have three options: raise taxes, cut spending, or grow the economy. I believe all must be pursued. We need some serious national shared sacrifice. I hope leaders rise to suggest real answers, and we consider our children and seek serious solutions rather than put the entire burden on any one group of Americans. Gary Shapiro is the president and CEO of the Consumer Electronics Association and the author of the New York Times bestseller, "The Comeback: How Innovation Will Restore the American Dream."