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Politifact Perpetuates Commonly Held Misconceptions about International Taxation

2 min readBy: William McBride

In last week’s debate, the President made the following statement:

“But I also want to close those loopholes that are giving incentives for companies that are shipping jobs overseas.”

Romney responded: “The idea that you get a break for shipping jobs overseas is simply not the case.”

And then Politifact steps in to settle the issue. Except the issue, international taxation, is extremely complex and the real experts spend their entire careers mastering the subject. Politifact writer Jon Greenberg gives it a weekend, calls me and a bunch of other experts, and ultimately determines the President’s statement is “true”.

This cannot be considered any sort of way to get at the truth. It is instead merely adding noise to a complex issue that is already beset by popular misconceptions and unscientific biases.

Despite acknowledging that “there is no clause in the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code that rewards a company when it relocates production beyond U.S. borders”, Politifact chose to redirect the question to the general idea that there are incentives in the tax code for moving abroad. Of course that is true, mainly because the U.S. has the highest corporate rate in the industrialized world. Plus, unlike the vast majority of industrialized countries, the U.S. tries to apply that rate to all foreign earnings. So, yes, corporations flee the U.S. to be rid of a punitive and overly complex corporate tax code. The President’s proposal to remove deductibility of moving expenses abroad only exacerbates this problem, and sends a signal that the U.S. will penalize any company that taps into the massive and growing consumer markets abroad.

Politifact cites Apple and Google as examples of companies that use their foreign operations to lower their tax bill. However, if this really were an effective tax shelter, wouldn’t there be examples of companies who have less legitimate overseas operations, i.e. domestic companies that have foreign operations only for tax purposes? Can someone name those companies?

The facts, which we lay out here, do not support this popular myth that multinationals exist to ship jobs overseas or provide massive tax shelters for domestic profits. The President should be called out for playing populist politics in this case, and Politifact has failed to do it.

Follow William McBride on Twitter @EconoWill