The Statement:
Title: Dan Maffei’s Job-Creation Plan
From: Democratic congressional candidate Dan Maffei, running in the 25th Congressional district. His opponents are Republican Dale Sweetland and Green Populist candidate Howie Hawkins. They are running to succeed retiring Republican Jim Walsh.
Type: Online position paper
URL: http://www.maffeiforcongress.com/Issues/MyJobCreationPlan
What It Says:
Statement from Maffei’s Web site: “Currently, our tax code rewards companies that move jobs out of the country. Our tax code treats profits earned by foreign subsidiaries of American corporations differently, putting companies who want to create jobs in the United States at a competitive disadvantage. These foreign tax havens have allowed companies like ExxonMobil to rake in record profits (more than $42 billion last year alone) all the while sheltering $56 billion in earnings.
“The Maffei plan would eliminate this inequity so companies who want to create jobs here are not at a competitive disadvantage.”
The Facts:
Manufacturing companies are leaving the Central New York area. From August 2007 to August 2008, the state has lost 17,900 manufacturing jobs, according to statistics from the New York State Department of Labor. But it’s not clear how many of those went overseas, went to other states or went out of business.
Also from August 2007 to August 2008, the Syracuse area has lost 600 manufacturing jobs. One example: Industrial supply giant Honeywell closed its plant in Skaneateles this past August and laying off 290 workers. The company moved its manufacturing to China.
Companies leave for overseas, Maffei’s Web site asserts, because they are offered federal tax breaks if the companies go abroad. Changing the tax code would alter that, Maffei said.
Let’s analyze those statements:
- “Currently, our tax code rewards companies that move jobs out of the country. Our tax code treats profits earned by foreign subsidiaries of American corporations differently, putting companies who want to create jobs in the United States at a competitive disadvantage.”
The United States tax code — the complex set of laws regulating taxation — does not specifically provide “breaks” to companies that move overseas, say tax experts. The tax code works like this: An American company moves overseas. The company then pays taxes to its new home government. And then that company does not have to pay federal U.S. taxes until profits are brought home.
And that is one reason why companies leave the country, explained David Harris, an accounting professor at Syracuse University. “It lets them go to low-tax jurisdictions and do things and delay the taxation,” Harris said. “If you read financial statements of major, multi-national corporations — they have to do what’s called a tax footnote, where they explain their belief about taxes on international profits — and a lot of companies say they’re never bringing the money back. So they’re never going to pay a tax.”
- “The Maffei plan would eliminate this inequity so companies who want to create jobs here are not at a competitive disadvantage.”
Overhaul of the tax code has been a long-standing plank of the Democratic platform. In August 2007, Democratic presidential candidate Barack Obama, along with others, proposed the Patriot Employers Act. It would provide a tax credit to businesses that retain jobs in America. Other Democratic presidential candidates, such as John Kerry and Dick Gephardt, have campaigned for similar changes in the tax code.
In his campaign for the 25th Congressional District, Maffei supports Obama’s Patriot Employers Act. And that type of policy is necessary to prevent businesses from leaving the country, said Abigail Gardener, spokesperson by the Maffei campaign.
“What a lack of policy does,” Gardner said, “is passively encourages businesses to move overseas because all the profits that they make from the overseas operation, even if they’re headquartered in America, aren’t taxed under U.S. tax code.”
But the tax code is not the only reason jobs are leaving New York, economists say.
It simply costs less to run factories overseas because workers aren’t paid as much, said David Liebschutz, a professor of public policy and assistant dean at SUNY-Albany. “The biggest reason why companies locate jobs overseas is not because of the tax code,” Liebschutz said. “The biggest reason is because of labor costs.”
It costs a company about $40,000 to $50,000 a year to employ an American factory worker, Liebschutz said. Companies also must pay towards Social Security, health insurances and other benefits, in addition to base salary. But that same job, now given to an Indonesian worker, costs about $10,000, Liebschutz explained.
New York’s strong union base is also a factor, said Harris, the Syracuse accounting professor. Companies can also move to states like Texas or West Virginia, which do not have a solid union presence.
Harris, who worked for years a pharmaceutical company, understands how unions are seen by multi-national companies. As the companies see it, Harris said, “Unions cause trouble.” As they win benefits for workers, they reduce profits. Said Harris, “They cause the cost of labor to go up, considerably.”
Conclusion:
The Maffei campaign makes accurate statements about the current condition of the federal tax code. But the campaign’s statements about the effect of changes to the tax code overlook key aspects of why companies and jobs are leaving Central New York.
(Andy McCullough is a senior newspaper journalism major.)
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