Study Finds Policies Lowering Foreign Taxes of U.S. Multinationals Unlikely to Benefit Domestic Workers

Recent Study Finds Lowering Foreign Taxes of U.S. Multinational Corporations Unlikely to Benefit Domestic Workers

A recent academic study released in February has shed light on the impact of policies that lower the foreign taxes of U.S.-based multinational corporations. The study, conducted by researchers Daniel Garrett, Eric Ohrn, and Juan Carlos Suárez Serrato, found that these policies are unlikely to benefit domestic workers.

The study focused on two key provisions: the 1997 “Check-the-Box” regulations and the 2004 “repatriation holiday.” The Check-the-Box regulations facilitated profit shifting from high-tax foreign affiliates to tax havens, while the repatriation holiday reduced the tax costs of repatriating foreign earnings for multinationals.

Using a dynamic “difference-in-differences” framework, the researchers found that local exposure to Check-the-Box significantly reduced domestic employment and earnings. This suggests that multinational companies may be substituting domestic activity with foreign activity in response to lower effective tax rates abroad.

On the other hand, the researchers found that the repatriation holiday had no effects on labor markets, indicating that foreign cash holdings of U.S.-based multinational corporations are not a significant source of financing for domestic business activity.

The study also highlighted the importance of global tax policies in shaping multinational corporations’ behavior. The Organization for Economic Cooperation and Development’s initiatives to combat corporate tax avoidance, including the Pillar Two plan setting a 15% global minimum income tax on multinational corporations, aim to address profit shifting and ensure a more level playing field for domestic workers.

Looking ahead, the researchers suggest that policies like the global minimum tax and the GILTI tax regime may help U.S. workers by narrowing the gap between foreign and domestic taxes. Additionally, they point to previous studies that have shown the effectiveness of policies like bonus depreciation in encouraging firms to hire more workers.

In conclusion, the study highlights the complex relationship between corporate tax policies, multinational corporations, and domestic workers. While lowering foreign taxes may benefit corporations, it may not necessarily translate to benefits for domestic workers. As policymakers continue to navigate these issues, it will be crucial to consider the broader implications for the economy and workforce.