Kerry Says His Tax Plan Protects Jobs

Democratic presidential contender John F. Kerry says his plan for keeping American jobs from migrating overseas might make a difference in places like Greenville, Mich., where Electrolux plans to shut down a refrigerator plant and move production to Mexico.

People in Greenville aren’t so sure.

“Right now, to be honest with you, their minds are made up,” said David Doolittle, a press operator who participated in a community campaign to keep the century-old plant operating. “Sen. Kerry, thank God he’s thinking about us ... but in our case it’s too late.”

Doolittle’s judgment mirrors the initial assessments of several industry experts and tax analysts, who said Kerry’s proposals to remove tax breaks for companies with foreign operations and create incentives to hire more Americans were unlikely to stanch the flow of U.S. jobs to other countries.

“The problems that are befalling American workers are so widespread that gimmicks, quick fixes and Band-Aids are not going to resolve them,” said University of Maryland trade economist Peter Morici. “We’ve lost too many jobs in too many sectors for it to be addressed by something like this.”

On Friday, Kerry unveiled a detailed economic agenda featuring initiatives he said would create 10 million jobs during his first term as president. Several of its key proposals were designed to deter the “offshoring” of U.S. jobs to other countries.

“We now have a tax code that does more to reward companies for moving overseas than it does to reward them for creating jobs here in America,” Kerry said. “If I am elected president, I will fight for the most sweeping international tax law reform in 40 years, a plan to replace tax incentives to take jobs offshore with new incentives for job creation on our own shores.”

Kerry’s plan would eliminate the deferral of corporate taxes on profits from foreign subsidiaries, provide a one-year tax break to companies that agree to bring their foreign earnings back to America, provide an across-the-board reduction in the corporate income tax, and temporarily waive payroll tax collections for companies that expand their U.S. workforces.

The flight of U.S. jobs to other countries has become a hot-button issue in the presidential election campaign. More than 2 million American jobs have been lost since President Bush took office. Although precise figures are not available, experts believe at least 300,000 jobs have moved overseas during that period.

Several tax experts said they thought Kerry’s proposals might restrict the flow but only incrementally.

“All manufacturers welcome his attention,” said Tom Duesterberg, president of Manufacturers Alliance, an industry-financed research organization. “But I’m afraid in the long run his proposals won’t do much to alleviate the problem. He’s flying in the face of fairly powerful trends.”

Taxes are only one consideration influencing a company’s decision to move production overseas, several experts said. Other factors include proximity to foreign markets, lower wages, reduced benefits, lax regulations and cheap energy.

“The things one can do with the tax code are limited,” said Alan J. Auerbach, director of the Robert D. Burch Center for Tax Policy at UC Berkeley. “Some decisions to go abroad are so driven by other factors that the tax consequences aren’t going to be important. But at the margin, I’m sure some decisions are going to be influenced by this.”

Len Burman, co-director of the Tax Policy Center, a joint venture of the Brookings Institution and Urban Institute, said the Kerry plan “would give companies a small incentive to hire a few more workers,” but he doubted it would turn the tide of jobs going to other countries.

“I wouldn’t expect it to have a huge effect, but it is a sensible policy,” Burman said. “The most important thing is to get our economy working well. If our economy is steaming along, the jobs will follow.”

Kerry’s campaign officials cited Electrolux’s decision to move refrigerator production from Greenville, Mich., to Juarez, Mexico, as an example of the kind of job flight his plan was designed to stop.

“These tax incentives certainly would have made it easier for this company to have stayed, and to keep their jobs in the United States,” said Kerry’s spokeswoman, Laura Capps. “It’s a compelling example.”

Compelling, perhaps, but it was not clear whether Kerry’s plan would have produced a different outcome.

The Greenville plant was built in the late 19th century, when it began producing Gibson iceboxes. Ownership changed hands several times, ending with AB Electrolux, a Swedish vacuum cleaner maker. It is the Greenville area’s largest employer, providing paychecks to 2,700 people in the town of 8,000.

In October, Electrolux told plant officials that it planned to close the factory and shift most of its production to Mexico, where wages, benefits and other costs would average $3.64 an hour, compared with $22.99 in Michigan. The company estimated it would save $81 million a year by moving.

For three months, plant workers and community leaders negotiated to try to keep production in Greenville. They offered concessions worth $74 million a year, only $7 million shy of the company’s projected savings. But Electrolux said no deal.

Barring a miracle, the plant is scheduled to close in November 2005, when its current union contract expires.

Officials at Electrolux’s U.S. headquarters in Augusta, Ga., could not be reached for comment. Press operator Doolittle, a member of the union committee, said he doubted whether Kerry’s tax proposals would be enough to change their minds.

Taxes were one of the concerns cited by Electrolux officials in explaining their motives, Doolittle said. But the big gap between U.S. and Mexican wages, the cost of providing health insurance to U.S. workers and retirees, and the absence of tough environmental standards in Mexico seemed to loom larger in their calculations.

“I call it a yarn ball,” he said. “There was so much to unravel it wasn’t funny.”

Greenville City Manager George Bosanic said the $74-million concession package included $8 million in state and local tax waivers, but efforts to get Michigan lawmakers to come up with $5 million in federal tax relief were unsuccessful.

Bosanic thinks the company was inclined to make the move no matter what, and the Kerry tax plan would not necessarily have made much difference.

“If that would have translated into $5 million a year over a long period of time, would it have swayed them? I don’t know,” he said.

Most likely, he said, “We’ll never know.”