Territorial Dispute

by Ramesh Ponnuru

Last night, Vice President Biden said,

Governor Romney believes in this global economy — it doesn’t matter much where American companies invest and put their money or where they create jobs. As a matter of fact, in his budget proposal, in his tax proposal, he calls for a new tax. It’s called a territorial tax, which the experts have looked at, and they acknowledge it will create 800,000 new jobs — all of them overseas, all of them.

The transcript then records boos. Fact-checkers have raised some objections to Biden’s attack, but several of them (and arguably all of them) are understating the problem with what he said.

The “experts” he’s talking about appears to be one expert, Kimberly Clausing of Reed College (an Obama donor). The study, or at least its applicability to Romney’s proposal, is questionable for a number of reasons. For example, Clausing assumes that the corporate tax rate stays the same. But Romney says he wants to cut it substantially, which means that companies would have less incentive to transfer operations overseas.

Here’s the bigger problem: Biden is misrepresenting what the study found. Clausing does not find that no jobs would be created in the U.S. She doesn’t look at the question. The Associated Press, to its credit, gets this point right, quoting Clausing as saying, “My analysis does not speak to the effects on jobs in the United States.” AP doesn’t quite draw out what this fact means, which is that it is simply false to say that research has found that all of the jobs a shift to territorial taxation would create would be overseas. (If Biden had said that one expert has found that all of the jobs the proposal would create abroad would be abroad, he’d have been accurate.)

William McBride, the chief economist of the Tax Foundation, sent me an email this afternoon on the subject:

She did not look at the domestic employment effects, only jobs abroad.  She admits as much, but her study has been construed to fit the populist myth that job growth abroad comes at the expense of jobs at home.  That is patently false, and the evidence indicates otherwise.  Would it make sense to prevent Starbucks from expanding outside of Washington State?  Likewise, penalizing companies for doing business abroad only hurts American workers, consumers, and the larger economy.

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