Following is an excerpt from a paper by Amy Hanauer, executive director of the Institute on Taxation and Economic Policy, published in cooperation with Groundwork Collaborative.
We all need the public sector to protect public health, keep us safe, educate our children, and much more. Companies, particularly multinational corporations, could not function without the legal, infrastructure, financial, regulatory, health, and transportation resources that the government provides. Corporations secured a $500 billion fund in the March 2020 emergency COVID-relief spending bill. But they also need more routine public spending in more ordinary times.
Sound tax policy requires that taxes raise enough money to fund what the country needs, do not exacerbate inequality, and do not favor one form of economic activity over another, unless there are specific reasons to do so. These principles have been neglected in much of our tax code. This brief describes the ways in which federal taxation policy for multinational corporations deviates from these core principles, undermining American public interests and even the long-term interests of the corporations themselves. We also put forth solutions for a more effective and equitable system.
Decades of poor decisions on trade policy have incentivized offshoring. Tax policy now contributes to the problem. The Trump-GOP tax law enacted in December 2017 creates clear incentives for American-based corporations to move operations and jobs abroad, including a zero percent tax rate on many profits generated offshore. Bad tax policy also now enables some corporations to avoid taxes altogether. Both of these make our economy less resilient at all times, and particularly during downturns. When corporations move unionized manufacturing jobs to other countries,
it can shift employment to lower-wage, lower-benefit service occupations that leave working people with insufficient savings to weather short-term downturns. This is particularly hard on workers in the Midwest, Black workers, and manufacturing workers, but it also puts downward pressure on all wages as unions have less power to set a wage floor. Tax cuts have left the public sector with insufficient resources5 to address crises like the pandemic and recession. Finally, these policies are all part of a global race to the bottom in wages, working conditions, environmental standards and other elements that could protect working people at a time when workplaces have become unsafe.