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

A recent academic study has shed light on the impact of policies that lower the foreign taxes of U.S.-based multinational corporations, revealing that they are unlikely to benefit domestic workers. The study, conducted by researchers from the Wharton School, Grinnell College, and Stanford University, examined the effects of two key provisions – the 1997 “Check-the-Box” regulations and the 2004 “repatriation holiday.”

The researchers employed a dynamic “difference-in-differences” framework to analyze the data and found that the Check-the-Box regulations significantly reduced domestic employment and earnings. This suggests that multinational companies may be substituting domestic activity with foreign operations in response to lower effective tax rates abroad.

On the other hand, the study found that the repatriation holiday had no effects on labor markets, indicating that the foreign cash holdings of U.S.-based multinational corporations are not a significant source of financing for domestic business activity. The researchers concluded that policies aimed at lowering the foreign taxes of U.S. multinational corporations are unlikely to benefit domestic workers.

According to Daniel Garrett, one of the researchers involved in the study, the results highlight the importance of considering the impact of tax policies on domestic employment. He emphasized that policies like bonus depreciation have been more effective in encouraging firms to hire more workers, rather than lowering foreign effective tax rates.

The study’s findings come at a time when global efforts are being made to combat corporate tax avoidance, with initiatives like the OECD’s Pillar Two plan setting a 15% global minimum income tax on multinational corporations. Moving forward, supporting a global minimum tax could help narrow the gap between foreign and domestic taxes, potentially benefiting U.S. workers.

Overall, the study underscores the need for policymakers to carefully consider the implications of tax policies on domestic employment and to prioritize measures that directly support job creation within the U.S. economy.