When It Isn’t Good to be Number One

America loves to be number one. But now we have the dubious distinction of being number one in a category that nobody wants: we have the highest corporate tax rate in the world. The result is that the U.S. tax code continues to drive American employers to outsource jobs overseas.

Since 2001, Japan had levied the highest combined corporate tax rate among the Organization for Economic Cooperation and Development (OECD) countries at 39.5 percent. They recently lowered their rate to 38.01 percent, which according to a study by the Tax Foundation puts Japan’s rate below America’s combined federal and state rate of 39.2 percent — the highest in the world.

What does this mean for America’s job picture? Our job creators have fewer financial resources to work with as they struggle to hire more employees. It also creates new incentives for U.S. companies to outsource more jobs overseas where tax rates are lower and the investment climate more welcoming.

This has become a self-fulfilling prophecy of the bashers of business. They rail as unpatriotic and traitorous those companies that find shelter overseas from excessive taxes and regulations. But at the same time, they create the conditions that make it impossible to successfully invest and grow a business in the United States.

The latest figures from the U.S. Department of Commerce indicate while American multinational employers increased their domestic work force by just 0.1 percent, they expanded their overseas employment by 1.5 percent.

This is a foreboding trend at a time when the private sector decreased the U.S. work force by 0.6 percent.

The Wall Street Journal estimates that U.S.-based multinationals account for about one-fifth of private employment in the U.S., with 23 million U.S. workers and 11 million in majority-owned affiliates overseas. Capital spending overseas by U.S. companies rose 8.6 percent to $173 billion.

Imagine what an additional $173 billion would mean to the U.S. economy.

What’s worse is that since 1999, U.S.-based multinationals have cut U.S. employment by about 1 million, but added 3 million workers overseas.
That’s a 39 percent increase in foreign based employees!

Meanwhile, foreign companies cut their employment in the U.S. by one percent to 5.2 million in 2010, while reducing capital spending in the United States by 1.7 percent.

As long as American companies don’t have confidence to invest in their business because of high taxes, unemployment and underemployment will continue to haunt some 25 million Americans.

One reason for this tax disaster is that the Obama administration continues to castigate business owners as greedy, rich fat cats. Since he has never owned a business, nor have the vast majority of people on his staff, (only 8 percent of the political appointees in the Obama Administration have had any sort of business experience), they simply don’t understand that business owners don’t sit on their cash dreaming about a yacht. Instead, they reinvest their money back into their business.

High corporate taxes kill job creation, kill innovation, and put the American dream out of reach for today’s entrepreneurs and small businesses, which account for over 70 percent of all new jobs created over the last decade.

Lest you think outsourcing jobs is all about wages, it’s not. Hourly rates are creeping up steadily overseas, while productivity and product quality are taking a dive.

As I write this piece, I am presently in South China and was astonished to learn wages are now nearly $3.00 an hour for unskilled workers and growing 20 percent a year. Yet, there is a significant shortage of labor. This is forcing manufacturers to move further inland where there is very little infrastructure.

One local Chinese manufacturer informed me he has to move his production of export goods to Thailand because the quality in his China plant is below international standards. He doesn’t feel conditions will change until he has access to better quality materials.

American wages have been at a virtual standstill for years, yet our productivity is soaring and the quality of American goods has never been higher. The world wants what America produces.

Back-shoring (bringing foreign jobs back to America) has been showing momentum, but it will stop dead in its tracks if our corporate tax rate cannot be brought under control. We should be using our tax code as an incentive to create jobs not as a spoiler.

We want to be number one in job creation, innovation, exports, and support for entrepreneurs and small businesses. We don’t want, and cannot, remain the world’s number one in corporate tax rates.

It puts us at a significant global disadvantage which is bad for all Americans.

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