‘Taxing Growth’ Means Fewer US Jobs

McLernon: ‘Taxing Growth’ Means Fewer US Jobs

NEW Study shows that further limits on interest deductibility will raise the cost of capital, decrease GDP, reduce investment, lead to fewer U.S. jobs and lower wages

 

WASHINGTON – Nancy McLernon, president and CEO of the Organization for International Investment (OFII), issued the following statement in releasing a new macroeconomic study demonstrating the state-by-state impact that additional limitations on interest deductibility could have on America’s economy:

“Making America the best place in the world to invest and create jobs should be the goal of corporate tax policy.  Failure to modernize our system for the 21st century has hurt America’s competitiveness.  As congressional leaders look for ways to update our system, it is imperative that they recognize how taxing growth by adding further restrictions on interest expense will lead to fewer U.S. jobs, lower wages, and decreased GDP – the antithesis of what these leaders and millions of their constituents desire.”  /p>

Foreign Direct Investment (FDI) plays a critical role in America’s economy.  Despite representing less than one-percent of all U.S. businesses, these insourcing companies account for 18 percent of America’s manufacturing workforce, produce 21 percent of U.S. exports, support 15 percent of all private-sector R&D, and pay their workers more than 33 percent higher wages than the economy-wide average.

Failure to keep America’s tax policy modern has made the United States less competitive compared to other nations.  In 1999, the OECD Average Corporate Tax Rate was 35 percent.  Today, it is 24 percent and now America has the highest rate of all OECD countries.  Over that same period, America’s share of global FDI has shrunk by half, from 37 percent to only 19 percent.

Companies – from small startups to large manufacturers – often borrow in order to grow their businesses.  The ability to deduct interest as a normal business expense is directly linked to their ability to invest, expand and grow the U.S. economy. 

The Organization for International Investment (OFII) commissioned the economics group within Ernst & Young (EY) to examine the effects that further limitations on interest expense would have on the U.S. economy.  The findings are alarming:

Further limits on interest deductibility (a de facto tax on interest and growth) will decrease GDP, reduce investment in the United States, lead to lower wages and fewer US jobs

• Reduced FDI: A study by EY shows that further limitations on interest expense would reduce global investment in America by between 2.4 percent and 7.1 percent ($66 billion to $196 billion in lost FDI). 
• Fewer U.S. Jobs: New limitations could also reduce the total employment contribution of insourcing companies by between 500,000 and 1.5 million U.S. jobs.
• Lower Wages: Labor income could fall by as much as $7.9 billion as labor intensity grows in a smaller economy.
• Decreased GDP: In a separate analysis, even when paired with a revenue-neutral reduction in the corporate income tax, further limits to interest expense could decrease GDP by as much as $11.1 billion annually. 

 Manufacturing jobs are at greatest risk

• Manufacturing Is America’s Largest FDI Sector:  More than 33 percent of FDI in the United States goes into the manufacturing sector.  Insourcing manufacturers generate $1.6 trillion in U.S. sales. 
• Less “Made in America:” Capital-intensive industries, including manufacturing, would be the most negatively affected.  The real estate industry could also see a $2.5 billion reduction in economic activity per year.

State-by-State analysis is available at www.ofii.org/ID.

About OFII
Created more than two decades ago, the Organization for International Investment (OFII) is a non-profit business association in Washington, D.C. representing the U.S. operations of many of the world's leading global companies, which insource millions of American jobs.  OFII works to ensure the United States remains the top location for global investment.  As such, OFII advocates for fair, non-discriminatory treatment of foreign-based companies and promotes policies that will encourage them to establish U.S. operations, increase American employment, and boost U.S. economic growth.  For more information, please visit www.OFII.org.