Edition: U.S. / Global

Kerry to Propose Eliminating a Tax Break on U.S. Companies’ Overseas Profits

Published: March 26, 2004


Aides said Mr. Kerry, the presumptive Democratic presidential nominee, would also challenge President Bush by saying his administration would spawn 10 million additional jobs over four years. Democrats often point out that more than two million jobs have been lost since Mr. Bush became president.

In a speech he is scheduled to deliver at Wayne State University in Detroit, a city that has been plagued by job losses in manufacturing, Mr. Kerry is to propose eliminating a major tax break on profits earned by American companies overseas and using that money to reduce the tax rate for all corporations.

"You know, economic plans aren't just about dollars and decimals — they're about choices," Mr. Kerry plans to say, according to excerpts of his prepared text provided by his campaign Thursday evening. "Time after time, this administration has put ideology first and jobs last. Today, I'm announcing a new economic plan for America that will put jobs first."


With voters saying that the economy is still the most important issue in the election, Mr. Kerry's speech is designed to begin a new economic policy offensive. It represents an approach that sounds some of the same notes as his frequent denunciation of "Benedict Arnold C.E.O.'s" during the Democratic primaries, yet is more sympathetic to business.

Kerry campaign officials said they hoped his proposal would appeal to people concerned about the loss of jobs to low-wage countries like China and India. But by advocating a crackdown on international companies but not an increase in the overall level of corporate taxes, the campaign is trying to avoid angering the business community.

"This is pure tax reform," said Gene Sperling, a top economic adviser to Mr. Kerry who also served as a senior policy adviser to President Bill Clinton. "He is eliminating tax incentives to move jobs overseas and using those funds to create incentives for new jobs and investment in the United States."

Steve Schmidt, a spokesman for President Bush's re-election campaign, denounced the proposals as "window dressing" and said that Mr. Bush supported a more comprehensive approach to job creation.

"John Kerry's proposal does not make the kind of fundamental reform that will make U.S. firms more competitive in the global environment," Mr. Schmidt said, adding that Mr. Kerry was "obstructionist" on job-creating engines like opening foreign markets, reducing regulation and lowering taxes.

On Thursday, Mr. Bush continued insisting that the economy was improving. "So we've been through recession, an attack, corporate scandals and war," he said at New Hampshire Community Technical College in Nashua. "And yet our economy is growing and getting stronger."

The essence of the Kerry plan boils down to two main elements.

The first would be eliminating the ability of American multinational companies to defer taxes on their foreign profits as long as those profits stay outside the United States. That would raise about $12 billion a year in extra tax revenue, which Mr. Kerry would use to reduce the overall corporate tax rate to 33.25 percent from 35 percent.

"If a company is torn between creating jobs here or overseas, we now have a tax code that has American taxpayers paying to ship jobs overseas," Mr. Kerry plans to say in Friday's speech. "That makes no sense. And if I am president, it will end."

Analysts on Wall Street have estimated that American companies have accumulated more than $400 billion in overseas profits, and multinationals are pushing for bills in Congress that would reduce taxes on foreign profits by as much as $37 billion over the next 10 years.

"The reason all that money is held overseas is because our international tax system does not prevent the double taxation of foreign source income," said John J. Castellani, president of the Business Roundtable, a lobbying organization that represents the chief executives of large corporations.

Many independent economists questioned Mr. Kerry's underlying assumption that the tax code plays a significant role in corporate decisions to set up factories overseas.

"My sense is that it is not usually the decisive factor," said Edward McKelvey, a senior economist at Goldman Sachs. "Normally, companies go offshore either because of cost reasons — labor costs, materials costs — or for market access reasons. Countries tell you that if you want to sell here, you need to be here."

Campaign officials acknowledged that the new plan would not stop the broader trend of outsourcing jobs to low-wage countries. But they said it would at least remove what they called a bias in the tax system that encourages such practices.

To sweeten his proposal for business, Mr. Kerry also borrowed an idea supported by many Republicans. In addition to reducing the corporate tax rate, the plan would give American multinational companies a one-year "tax holiday" under which they could bring their accumulated foreign profits back to the United States at a tax rate of only 10 percent.

Economic advisers to Mr. Kerry said the tax holiday would actually lead to a short-term windfall in tax revenues, because companies would have a special incentive to bring back hundreds of billions of dollars that have been sitting untaxed overseas.

Under the plan, the government would use that windfall to pay for a two-year tax credit to companies that create new jobs.