LEXIS-NEXIS® Congressional Universe-Document

Search Terms: tax w/5 foreign w/5 income, House or Senate or Joint

Document 46 of 113.

JUNE 30, 1999, WEDNESDAY

SECTION: IN THE NEWS

LENGTH: 5705 words

HEADLINE: PREPARED STATEMENT OF
PETER R. MERRILL
ON BEHALF OF THE
NATIONAL FOREIGN TRADE COUNCIL, INC.
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
SUBJECT - THE IMPACT OF U.S. TAX RULES
ON INTERNATIONAL COMPETITIVENESS

BODY:

I. INTRODUCTION
I am Peter Merrill, a principal in the Washington National Tax Services office of PricewaterhouseCoopers LLP, and director of the National Economic Consulting group. I am testifying today as a member of the drafting group of a recent National Foreign Trade Council report on International Tax Policy for the 21st Century: A Reconsideration of Subpart F. 1 This report is a comprehensive legal and economic review of the U.S. anti-deferral rules that have applied to U.S. multinational companies since they were enacted by Congress in 1962.
This testimony/2 briefly addresses four key economic issues that are discussed more fully in the NFTC report: 1. How has the global economy changed during the 37 years since subpart F was enacted?
2. Is foreign investment by U.S. companies harmful to the domestic economy?
3. Does the competitiveness of U.S.-headquartered companies matter for U.S. well being?
4. How does U.S. tax policy affect the competitiveness of U.S. multinational companies?
II. GLOBAL ECONOMIC CHANGE SINCE 1962
In 1962, the Kennedy Administration proposed to subject the earnings of U.S. controlled foreign corporations to current U.S. taxation. At that time, the dollar was tied to the gold standard, exchange rates were fixed, and the United States was the world's largest capital exporter. These capital exports drained Treasury's gold reserves, and made it more difficult for the Administration to stimulate the economy. Thus the proposed repeal of deferral was intended by Treasury Secretary Douglas Dillon to serve as a form of capital control, reducing the outflow of U.S. investment abroad.
The compromise adopted by Congress, in response to the Kennedy Administration's proposal, was shaped by the global economic environment of the early 1960s--a world economy that has changed almost beyond recognition as the 20th century draws to a close. The gold standard was abandoned during the Nixon Administration, and the exchange rate of the dollar is no longer fixed. The United States is now the world's largest importer of capital, with net capital outflows of over $200 billion per year.
National economies are becoming increasingly integrated. Globalization is being fueled both by technological change of almost unimaginable rapidity, and a worldwide reduction in tariff and regulatory barriers to the free flow of goods and capital.
Foreign Direct Investment
In the 1960s, the United States completely dominated the global economy, accounting for over 50 percent of worldwide cross-border direct investment, and 40 percent of worldwide Gross Domestic Product (GDP). In 1960, of the world's 20 largest corporations (ranked by sales), 18 were headquartered in the United States (see Table 1).
Three decades later, the United States confronts far greater competition in global markets. As of the mid-1990s, the U.S. economy accounted for about 25 percent of the world's foreign direct investment and GDP, and just 8 of the world's 20 largest corporations were headquartered in the United States. The 21,000 foreign affiliates of U.S. multinationals now compete with about 260,000 foreign affiliates of multinationals headquartered in other nations.3 The declining dominance of U.S.-headquartered multinationals is dramatically illustrated by the recent acquisitions of Amoco by British Petroleum, Chrysler by Daimler-Benz, AirTouch by Vodafone, !
Bankers Trust by Deutsche Bank, and Transamerica by AEGON. These mergers have the effect of converting U.S. multinationals to foreign- headquartered companies.
Table 1.--The United States and the World Economy: 1960s and 1990s
(NOTE: Table not transmittable)
Ironically, despite the intensified competition in world markets, the U.S. economy is far more dependent on foreign direct investment than ever before. In the 1960s, foreign operations averaged just 7.5 percent of U.S. corporate net income; by contrast, over the 1990-97 period, foreign earnings represented 17.7 percent of all U.S. corporate net income. A recent study of the Standard and Poors' 500 corporations (the 500 largest publicly-traded U.S. corporations) finds that sales by foreign subsidiaries have increased from 25 percent of worldwide sales in 1985 to 34 percent in 1997.4
The U.S. Market
In 1962, U.S. companies focused manufacturing and marketing strategies in the United States, which at the time was the largest consumer market in the world. U.S. companies generally could achieve economies of scale and rapid growth selling exclusively into the domestic market. In the early 1960's, foreign competition in U.S. markets was inconsequential.
The picture is now completely changed. First, U.S. companies now face strong competition at home. Since 1980, the stock of foreign direct investment in the United States has increased by a factor of six (from $126 billion to $752 billion in 1997), and $20 of every $100 of direct crossborder investment flows into the United States. Foreign companies own approximately 14 percent of all U.S. non-bank corporate assets, and over 27 percent of the U.S. chemical industry.5 Moreover, imports have tripled as a share of GDP from an average of 3.2 percent in the 1960s to an average of over 9.6 percent over the 1990-97 period (see Table 5-1).
Second, foreign markets frequently offer greater growth opportunities than the domestic market. For example, from 1986 to 1997, foreign sales of S&P 500 companies grew 10 percent a year, compared to domestic sales growth of just 3 percent annually.6
From the perspective of the 1960s, there was little apparent reason for U.S. companies to direct resources to penetrating foreign markets. U.S. companies frequently could achieve growth and profit levels that were the envy of their competitors with minimal foreign operations. By contrast, in today's economy, competitive success frequently requires U.S. companies to execute global marketing and manufacturing strategies.
International Trade
Over the last three decades, the U.S. share of the world's export market has declined.

In 1960, one of every six dollars of world exports originated from the United States. By 1996, the United States supplied only one of every nine dollars of world export sales. Despite a 30-percent loss in world export market share, the U.S. economy depends on exports to a much greater degree. During the 1960s, only 3.2 percent of national income was attributable to exports, compared to 7.5 percent over the 1990-97 period.
Foreign subsidiaries of U.S. companies play a critical role in boosting U.S. exports--by marketing, distributing, and finishing U.S. products in foreign markets. U.S. Commerce Department data show that in 1996 U.S. multinational companies were involved in 65 percent of all U.S. merchandise export sales.7 The importance of foreign operations also is indicated by the fact that U.S. industries with a high percentage of investment abroad are the same industries that export a large percentage of domestic production.8
Foreign Portfolio Investment
In 1962, policymakers would scarcely have taken note of cross-border flows of portfolio investment. As recently as 1980, U.S. portfolio investment in foreign private sector securities amounted to only $62 billion--85 percent less than U.S. direct investment abroad. By 1997, U.S. portfolio investment abroad had increased 2,230 percent to over $1.4 trillion--40 percent more than U.S. direct investment abroad. Similarly, foreign portfolio investment in U.S. private securities increased from $90 billion in 1980 to over $2.2 trillion in 1997 (see Table 1).
Institutional changes have greatly facilitated foreign portfolio investments, including the growth in mutual funds that invest in foreign securities and the listing of foreign corporations on U.S. exchanges. According to the New York Stock Exchange, the trading volume in shares of foreign firms totaled $485 billion in 1997, or over eight percent of total NYSE trading volume.9 Market capitalization of foreign firms listed on the NYSE topped $3 trillion in 1998.10
The Administration's 1962 proposal to terminate deferral for U.S. CFCs was motivated in large part by a desire to ensure that foreign direct investment not flow off-shore for tax reasons. At the time, U.S. direct investment abroad exceeded private portfolio investment by a factor of 6.5 to 1; thus, it is not surprising that the Administration focused much of its attention on the taxation of direct investment abroad in 1962.
In the current economic environment, U.S. portfolio investors (e.g., individuals, mutual funds, pension funds, insurance companies, etc.) increasingly allocate capital to foreign-based multinational companies whose foreign investments are not subject U.S. corporate income tax. Under these circumstances, the impact of U.S. multinational corporation tax rules on the global allocation of capital is greatly attenuated.11
Market Integration
The explosive pace of economic integration has been aided by governments that have liberalized trade and investment climates, An alphabet soup of regional trade agreements has complemented the original multilateral agreement, GATT. In addition to the formation of the European Union--the world's largest common market--free trade agreements are creating increasingly integrated multinational markets. Examples include the European Economic Area (European Union plus remaining members of the European Free Trade Area), NAFTA (North America), ASEAN (Southeast Asia), ANZCERTA (Australia and New Zealand), and MERCOSUR (Latin America). Almost half of the 153 regional trade agreements notified to the GATT or the WTO have been set up since 1990. 12 Complementing these trade agreements are hundreds of bilateral investment treaties (BITs) which reduce barriers to foreign direct investment flows. UNCTAD reports that there has been a three-fold increase in BITs in the five years to 1997. 13
A consequence of market integration is that U.S. companies and their foreign competitors increasingly do not view their business as occurring in separate country markets, but rather in regional markets where national boundaries often have little economic significance. In this economic environment, the distinctions in subpart F, between economic activities conducted within and outside a foreign subsidiary's country of incorporation, have in many cases become artificial. When there is a high degree of economic integration between national markets, tax rules that treat these markets separately are as arbitrary as distinctions between a company's transactions with customers in different cities.
Conclusions
In the decades since the enactment of subpart F in 1962, the global economy has grown more rapidly than the U.S. economy. Concomitantly, U.S. companies have confronted both the rise of powerful foreign competitors and the growth of market opportunities abroad. By almost every measure--income, exports, or cross-border investment--the United States today represents a smaller share of the global market. At the same time, U.S. companies have increasingly focused on foreign markets for continued growth and prosperity. Over the last three decades, sales and income from foreign subsidiaries have increased much more rapidly than from domestic operations. To compete successfully both at home and abroad, U.S. companies have adopted global sourcing and distribution channels, as have their competitors.
These developments have a number of potential implications for tax policy. U.S. tax rules that are out of step with those of other major industrial counties are now more likely to hamper the competitiveness of U.S. multinationals in today's global economy than was the case in the 1960s. The growing economic integration among nations--specially the formation of common markets and free trade areas--raises questions about the appropriateness of U.S. tax rules that treat foreign transactions differently if they cross national borders than if they occur within the same country.
The eclipsing of foreign direct investment by portfolio investment calls into question the ability of tax policy focussed on foreign direct investment to influence the global allocation of capital.
The abandonment of the gold standard has eliminated balance of payment considerations as a rationale for using tax policy to discourage U.S. investment abroad. Indeed, as the world's largest debtor nation, tax policies that discourage U.S. investment abroad are obsolete.
IlI. IS FOREIGN INVESTMENT BY U.S. COMPANIES HARMFUL TO THE DOMESTIC ECONOMY?
While acknowledging the anti-competitive implications of subpart F, opponents of deferral frequently argue that U.S. direct investment abroad comes at the expense of the U.S. economy. From this perspective, subpart F is viewed as protecting the U.S. economy in general--and U.S. workers specifically--from the flow of U.S. investment abroad. Opponents of deferral often oppose flee trade agreements because the free flow of goods across national borders, much like the free flow of investment, is perceived as jeopardizing domestic jobs.
The data and economic studies, summarized below, however, support the view that outward investment is beneficial rather than harmful to the home country economy. As noted in a recent report of the Organization for Economic Cooperation and Development (OECD), critics of outward direct investment sometimes fail to look at the broader economic ramifications.
The effects of direct investment outflows on the source country, particularly on employment are sometimes still regarded with some disquiet. Most concerns regarding the effects of FDI (foreign direct investment) outflows may arise because investment is viewed statically and without due regard to the spillover effects it generates at home and abroad. In fact, however, domestic firms and their employees generally gain from the freedom of businesses to invest overseas. As with trade, FDI generally creates net benefits for host and source countries alike.14
Background: Why Do U.S. Corporations Invest Abroad?
Contrary to the image some commentators have that U.S. corporations set up foreign affiliates as substitutes for U.S. operations, the latest UN report on foreign investment finds that "accessing markets will remain the principal motive for investing abroad."15 Tariff and non-tariff barriers, transportation costs, local content requirements, location of natural resources, location of customer facilities, and other factors frequently make investing abroad the only feasible option for successfully penetrating foreign markets. Moreover, a local presence generally is required for services industries such as finance, retail, legal, and accounting.16 In addition, multinational customers frequently prefer to deal with suppliers and service providers who have operations in all of the jurisdictions in which they operate. Foreign investment also allows U.S. parent companies to diversify risks; through diversification, a downturn in the home market may be offset by an upturn abroad.

High-income countries provide the most lucrative opportunities for U.S. multinationals. As a result, government data show that the bulk of U.S. direct investment abroad goes to high-wage, high-income countries. In 1996, 81 percent of assets and 68 percent of employment were in high-income developed countries rather than low-wage developing nations.17 This pattern of investment is consistent with the view that the presence of rich consumer markets is a much more important explanation for U.S. investment abroad than low wages. Low wages typically indicate low productivity, so there is little if any advantage to be obtained from manufacturing in low-wage jurisdictions, particularly where the economic infrastructure (e.g., transportation, communication, electricity and water services) and legal infrastructure are not adequately developed.
Further evidence for the hypothesis that U.S. direct investment abroad is attracted by consumer demand rather than low-cost labor supply is the fact that less than 10 percent of U.S.-controlled foreign corporation sales were exported to the United States. If U.S. investment abroad were motivated by the desire to substitute cheap foreign labor, rather than to serve foreign markets, one would expect a significant amount of U.S. multinational production abroad to be shipped back to the United States? In fact, over half of all foreign affiliates of U.S. companies are engaged in services and trade, activities that are closely tied to the customers' location. 19
If U.S. investment abroad were attracted by low wages, as critics contend, foreign employment and production of U.S. multinationals abroad would be rising in comparison to domestic employment and production. In fact, the output and employment of U.S.-controlled foreign corporations has declined as a share of domestic output and employment since the CFC data were first published by the Bureau of Economic Analysis in 1982.20
The centrality of the sales expansion function of foreign affiliates suggests that the operations of U.S. parent finns and their foreign affiliates are mutually reinforcing rather than substitutes. Direct investment abroad frequently leads to additional exports of machinery and other inputs into the manufacturing process as well as additional demand at home for headquarters services such as research, engineering, finance, etc. The parent companies of U.S. multinationals purchase over 90 percent of their inputs from U.S.-based suppliers.21 Exports
U.S. multinational corporations play a crucial role in U.S. foreign trade. As affiliates establish production and distribution facilities abroad, export data indicate that they source a large quantity of inputs from the United States. U.S. multinationals were responsible for $407 billion of merchandise exports in 1996 representing almost two-thirds of all U.S. merchandise exports.
Academic studies support the hypothesis that U.S. investment abroad promotes U.S. exports. For example, Prof. Robert Lipsey finds a strong positive relationship between manufacturing activity of foreign affiliates of U.S. corporations and the level of exports from the U.S. parent company? Similarly, a recent OECD study of 14 countries found that "each dollar of outward FDI (foreign direct investment) is associated with $2 of additional exports and with a bilateral trade surplus of $1.70."23 These studies support the conclusion that if U.S. investment abroad were curtailed, U.S. exports would suffer.
Headquarters services
In addition to their role in increasing demand for U.S. exports, foreign affiliates of U.S. corporations also increase the demand for U.S. headquarters services such as management, research and development, technical expertise, finance, and advertising. These support activities expand as U.S. affiliates compete successfully abroad. For example, in 1996, nonbank U.S. multinationals performed 88 percent of their research and development in the United States, even though one-third of their sales were abroad?4
Headquarters functions, such as R&D, finance, and management, are the types of activities that are prospering in the information-oriented economy. As such, some economists have argued that U.S. tax policy should seek to make the United States an attractive location for multinational corporations to establish their headquarters.25 Unfortunately, because of subpart F and other aspects of U.S. international tax rules, the United States is one of the least attractive jurisdictions--from a tax perspective---for a multinational corporation's headquarters.26
U.S. Investment Abroad and U.S. Employment
Rather than draining jobs and production from the United States, the economic evidence points to the opposite conclusion--U.S, investment abroad increases activity at home. The complementary relationship between the foreign and domestic operations of U.S. multinational corporations means that U.S. workers need not be harmed by U.S. investment abroad.27 Profs. David Riker and National Economic Council Deputy Director Lael Brainard find that the labor demand of U.S. multinationals at home and abroad are linked, with an increase in one supporting an increase in the other:
"labor demand of U.S. multinationals is linked internationally at the firm level, presumably through trade in intermediate and final goods, and this link results in complementarity rather than competition between employers in industrialized and developing countries." 28
The foreign operations of U.S. companies also are associated with higher wages of U.S. workers. U.S. companies that invest overseas, on average, pay higher domestic wages than do purely domestic companies in the same industries. Profs. Mark Doms and Bradford Jensen find that U.S. parent companies pay higher wages to their entire workforce, and that the wage premium in percentage terms is greater for lower paid production workers than for higher paid nonproduction workers.29 Prof. Slaughter interprets this as evidence that U.S. parent companies promote a more equal distribution of income by paying higher wage premia to traditionally lower paid workers.3x
Investment abroad by U.S. multinationals not only is essential to facilitating the distribution and servicing of U.S. exports, but failure of U.S. multinationals to invest abroad would create an opportunity for foreign-headquartered competitors to increase their investment in and exports to foreign markets.
Returns to U.S. Investors
U.S. shareholders in U.S. multinationals directly realize the benefits of the high profits and risk diversification offered by international operations. The pre-tax return on assets earned by U.S.controlled foreign corporations was almost 30 percent higher than the return earned on domestic corporate investment in 1995.3: These foreign profits totaled $150 billion, and accounted for about 18 percent of all U.S. corporate profits in 1997.32
The profits earned abroad by U.S. multinationals are part of national income (GNP) and are reflected in the share valuations. Moreover, much of the income earned abroad by foreign subsidiaries is distributed back to the United States. According to the most recent available IRS data, in 1994, distributions from the largest U.S.-controlled foreign corporations totaled $50 billion, amounting to 67 percent of their after-tax earnings and profits.
Academic research has found a large premium in the returns from foreign investment as compared to domestic investment. Prof. Martin Feldstein concludes that an additional dollar of foreign direct investment by U.S. corporations, in present value, leads to 70 percent more interest and dividend receipts and U.S. tax payments than an additional dollar of domestic investment.33
Conclusion
Fears that U.S. investment abroad comes at the expense of output, income, and employment at home are not supported by data or economic research. Rather, the evidence strongly confirms that market access, rather than cheap labor, primarily motivates foreign direct investment. The overwhelming majority of foreign direct investment is in high-wage countries, and very little of the foreign output of U.S. multinationals is shipped back to the United States. Numerous studies have found that foreign investment not only produces higher returns to U.S. investors but also is complementary with economic activity in the United States--leading to increased exports and high-paid research, engineering, and other headquarters jobs in the United States.

There is no evidence that U.S. investment abroad has reduced employment in the United States; indeed, the data show that companies with investment outside the United States pay better wages than purely domestic companies in the same industries?
Restricting foreign investment in an attempt to protect domestic employment ultimately is a selfdefeating policy. Foreign companies will seize these investment opportunities and increase market share at the expense of U.S. multinationals' employment at home and abroad.
Like international trade in goods and services, foreign direct investment benefits both home and host countries; thus, it is in the mutual interest of home and host countries to reduce barriers to the free flow of direct investment. In view of the recent downturn that has struck a number of emerging market economies, it is important to distinguish foreign direct investment from international portfolio investment. Portfolio investment, such as investment in short-term government and private debt obligations, can easily be withdrawn at the first hint of an economic reversal. By contrast, foreign direct investment, particularly in plant and equipment, is long-term in nature, and cannot easily be removed. Barriers to U.S. direct investment abroad not only harm the development of foreign countries, but also deprive the U.S. economy of the increased returns, exports, and wages associated with multinational investment.
IV. DOES THE COMPETITIVENESS OF U.S.-HEADQUARTERED COMPANIES MATTER FOR U.S. ECONOMIC WELL-BEING?
In a provocative article, former Labor Secretary Robert Reich argues against multinational competitiveness as a goal for U.S. policy. 35 In Reich's view, where corporations happen to be headquartered is "fundamentally unimportant." Reich believes U.S. policymakers should focus primarily on domestic investments (whether by domestic or foreign companies) and less on the strength of American companies.
In response, Prof. Laura Tyson, former Chair of the Council of Economic Advisers and former Director of the National Economic Council, argues that under current conditions, the "competitiveness of the U.S. economy remains tightly linked to the competitiveness of U.S. companies." Tyson offers a number of reasons for this linkage, including:36
- U.S. multinationals locate over 70 percent of their assets and employment in the United States;
- U.S. multinationals invest more per employee and pay more per employee at home than abroad in both developed and developing countries;
- U.S. multinationals perform the overwhelming majority of their R&D at home;
- The leadership of U.S. multinationals is overwhelmingly American;
- Trade barriers frequently require U.S. companies to invest abroad in order to sell abroad; and
- U.S. affiliates of foreign finns rely much more heavily on foreign suppliers than on domestic companies.
Tyson believes that American interests will be advanced through multilateral reductions in trade and investment barriers, and through policies that make the U.S. an attractive production location for high-productivity, high-wage, and research-intensive activities.
V. HOW DOES U.S. INTERNATIONAL TAX POLICY AFFECT THE COMPETITIVENESS OF U.S. MULTINATIONAL COMPANIES?
If policymakers wish to attract high-end jobs to the United States, they must consider whether the U.S. income tax system makes the United States a desirable location for establishing and maintaining a corporate headquarters. If the U.S. corporate income tax is not competitive, U.S. headquartered companies can be expected to lose world market share with a commensurate loss in the U.S. share of headquarter-type jobs. While the country of incorporation is not necessarily where headquarters functions are located, there is indisputably a very high correlation between legal residence and headquarters operations.
A number of studies have found that, compared to other major industrial countries, the U.S. income tax system places a relatively high burden on cross-border corporate investment.37 The tax burden is relatively high for two main reasons: (1) the U.S. international tax regime, including subpart F, is more restrictive than that of most other countries; and (2) unlike most other major industrial countries, the United States does not relieve the double taxation of corporate dividends.
Over time, countries that place relatively high tax burdens on multinational corporations can expect to see a reduction in investment in domestic headquartered companies. This can occur through a loss in market share and profits that can be reinvested in the business. Alternatively, domestic companies may merge with foreign corporations in transactions that result in a foreign headquartered company. Recent U.S. examples include the BP-Amoco, Daimler-Chrysler, Vodafone- AirTouch, Deutsche Bank-Bankers Trust, and AEGON-Transamerica mergers. In these examples, future investments outside the United States will most likely not be made by the U.S. merger partner, but instead by the foreign parent, permanently removing such investment from the U.S. corporate income tax net.
Foreign-headquartered companies also can grow at the expense of U.S.- headquartered companies, if U.S. investors buy shares of foreign companies on U.S. or foreign exchanges. The growth in U.S. mutual funds that invest in foreign stocks is an illustration of this trend, as are investments in foreign firms listed on U.S. stock exchanges.
While some have advocated increasing U.S. tax on the foreign earnings of U.S. multinationals as a way to protect U.S. jobs, the most likely consequence of such action will be a loss in the global market share of U.S. headquartered companies. Rather than protecting U.S. jobs, imposing a tax system on U.S. multinationals that is more burdensome than that of their foreign competitors will hamper the growth of U.S. companies, ultimately reducing U.S. exports, research and development, and high-quality American jobs.
1 National Foreign Trade Council, Inc. International Tax Policy for the 21st Century: A Reconsideration of Subpart F, March 25, 1999, Washington, D.C.
2 This statement draws heavily on Chapter 5 and 6 and of the NFTC report.
3 UNCTAD, World Investment Report, 1997.
4 IBES International based on Disclosure data as reported in the Wall Street Journal, "U.S. Firms Global Progress is Two-Edged," August 17, 1998.
5 PricewaterhouseCoopers calculations based on Department of Commerce and IRS data.
6 Wall Street Journal, Op. cit.
7 U.S. Bureau of Economic Analysis, Survey of Current Business, September 1998.
8 Robert E. Lipsey, "Outward Direct Investment and the U.S. Economy," in M. Feldstein, J. Hines, Jr., and G. Hubbard (eds.), The Effects of Taxation on Multinational Corporations, University of Chicago Press, 1995.
9 Trading in foreign companies is primarily, but not solely, through depository receipts.
10 NYSE, Quick Reference Sheet, and discussion with NYSE Research, September 1998.
11 See Section E of Chapter 6 of the NFTC report for a discussion of this issue.
12 The Economist, October 3, 1998, p. 19.
13 UNCTAD, World Investment Report, 1997.
14 OECD, Open Markets Matter.

' The Benefits of Trade and Investment Liberalization, 1998, p. 49.
15 UNCTAD, World Investment Report, 1997, p. xix.
16 See, OECD, Open Markets Matter: The Benefits of Trade and Investment Liberalization, 1998, p. 50.
17 Developed countries are defined here as Europe, Canada, Australia, New Zealand, South Africa, Japan, Singapore, and Hung Kong. See, U.S. Department of Commerce, U.S. Direct Investment Abroad (September 1998).
18 See, Peter Merrill and Carol Dunahoo, "Runaway Plant Legislation: Rhetoric and Reality," Tax Notes (July 8,1996) pp. 221-226 and Tax Notes International (July 15, 1996) pp. 169-174.
19 Mathew Slaughter, Global Investment, American Returns, Emergency Committee for American Trade, 1998.
20 The gross product of controlled-foreign corporations (CFCs) has fallen from 6.9 percent of U.S. GDP in 1982 to 6.6 percent in 1996. Similarly, CFC employment as fallen from 5.0 percent of U.S. domestic employment in 1982 to 4.9 percent in 1986.
21 Mathew Slaughter. Global Investments, American Returns Emergency Committee for American Trade, 1998.
22 Robert E. Lipsey, "Outward Direct Investment and the U.S. Economy," in M. Feldstein, J. Hines, Jr., and G. Hubbard (eds.), The Effects of Taxation on Multinational Corporations, University of Chicago Press, 1995.
23 See, OECD, Open Markets Matter: The Benefits of Trade and Investment Liberalization, 1998, p. 50.
24 U.S. Department of Commerce, Survey of Current Business, (September 1998).
25 See Gary Hufbauer, U.S. Taxation of International Income: Blueprint for Reform, Institute for International Economics, 1992.
26 See, Price Waterhouse LLP, Taxation of U.S. Corporations Doing Business Abroad: U.S. Rules and Competitiveness Issues, Financial Executives Research Foundation, 1996.
27 See, OECD, Open Markets Matter: The Benefits of Trade and Investment Liberalization, 1998, pp. 73-76.
28 David Riker and Lael Brainard, "U.S. Multinationals and Competition from Low Wage Countries," NBER Working Paper No. 5959, March 1997.
29 Mark Doms and Bradford Jensen, "Comparing Wages, Skills, and Productivity Between Domestic and Foreign Owned Manufacturing Establishments in the United States," miraco., October 1996.
30 Matthew J. Slaughter, "Production Transfer Within Multinational Enterprises and American Wages," mimeo., March 1998.
31 Earnings (excluding capital gains and special charges) before interest and taxes as a percent of assets, as calculated by the U.S. Dept. of Commerce.
32 U.S. Dept. of Commerce, Survey of Current Business, (August 1998).
33 Martin Feldstein, "Tax Rules and the Effect of Foreign Direct Investment in U.S. National Income," in Taxing Multinational Corporations, eds. Martin Feldstein, James Hines, and Glenn Hubbard, 1995.
34 For anecdotal evidence from case studies of U.S. multinationals, see Mathew Slaughter, Global Investments, American Returns, Emergency Committee for American Trade, 1998 (Chapter V).
35 Robert Reich, "Who is Us?" Harvard Business Review (January- February 1990) pp. 53-64.
36 Laura D'Andrea Tyson, "They are not Us: Why American Ownership Still Matters," The American Prospect, Winter, 1991.
37 For an international comparison U.S. multinational tax competitiveness, see: Price Waterhouse LLP, Taxation of U.S. Corporations Doing Business Abroad: U.S. Rules and Competitiveness Issues, Financial Executives Research Foundation, 1996 (Chapter 10).
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