“Buy America” Helps Jobs, Economy; Giant Tax Dodgers Want It Gone

Dave Johnson

Bloomberg News has a great report on the pressure to ban “Buy America” procurement policies in the trade agreements the United States is currently negotiating. Bloomberg focuses on an Oregon company making streetcars to show the damage that banning Buy America provisions would do to companies that make things here. Meanwhile, many of the giant companies pushing to ban Buy America rules don’t pay their taxes.

Kathleen Miller reports at Bloomberg on the pressure from giant multinational companies to ban Buy America policies in our government procurement in “EU Targets Buy America in Trade as Streetcar Maker Grows.” Miller writes about United Streetcar, part of Oregon Iron Works Inc., writing that the company “is winning work across the country, its market entry helped by laws that favor American business and hamstring overseas competitors.”

But giant multinationals want to ban this practice, thinking it will help them win a few contracts in other countries.

In trade negotiations with the Obama administration, dozens of European Union and Pacific nations are seeking to compete more equally with U.S. suppliers for state, local and federal contracts, a combined market that easily tops $650 billion annually.

American companies such as General Electric Co. (GE) and Caterpillar Inc. (CAT) also support easing provisions that favor U.S. businesses, viewing them as barriers to overseas growth. United Streetcar and Nucor Corp. (NUE), the nation’s largest steel producer by market value, want to keep them.

Why Buy America?

Buy America policies let We the People use our taxpayer dollars to help American workers and American companies, especially when our economy needs a boost. During the 2009 Recovery Act “stimulus,” for example, we needed to focus taxpayer funds on stimulating the American economy, not China’s. But in Congress Republicans tried to block Buy America policies, saying Chinese and other foreign companies should be able to bid on infrastructure projects. As a result, Buy America policies in the stimulus were weakened. Later, of course, Republicans attacked the stimulus for allowing non-U.S. companies to benefit even though they were the ones who had weakened the Buy America provisions.

The Republican National Committee on Tuesday launched a new website charging that Obama “sent taxpayer dollars” to build solar panels in Mexico, windmills in Denmark and batteries in South Korea. The accusation involves money from the 2009 stimulus package that went to foreign-owned companies or to companies relying on foreign suppliers.

There’s another reason for Buy America policies. Some argue that Buy America keeps contracts from being awarded to the lowest bidder, costing taxpayers money. A look at the use of Chinese steel in the new San Francisco Bay Bridge exposes the flaw in that thinking.

Using Chinese steel saved one state agency some money. But when the costs to other state and federal government agencies as well as to the larger economy are added up, the overall costs to taxpayers and our economy are much more than the savings. This outsourcing cost of thousands of American manufacturing jobs (3.5 million man-hours), which meant:

  • loss of state and federal tax revenue from taxes on the wages and taxes of the workers and taxes on the companies that employed them,
  • outgoing cost of unemployment benefits, food stamps and other “safety net” programs,
  • cost of resulting foreclosures,
  • the “ripple effect” economic costs of all these lost jobs — lost sales at stores, restaurants, gas stations, etc.,
  • loss of worker training and in-country manufacturing infrastructure.
  • the resulting downward pressure on everyone else’s wages,/li.

One more thing happened with the Bay Bridge. The contract allowed the Chinese steel company to modernize its plant, and it is now bidding against U.S. companies on other bridge projects.

GE? Caterpillar? Really?

The Bloomberg report identified two of the companies pressuring our trade negotiators for a ban on Buy America procurement policies. These are GE and Caterpillar.

Did they mean this GE? (The New York Times) “G.E.’s Strategies Let It Avoid Taxes Altogether”:

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

Caterpillar? Did they mean this Caterpillar? “Abbott, Caterpillar among companies with most offshore tax-haven subsidiaries”:

Abbott Laboratories and Caterpillar Inc. are among the largest publicly traded companies in the nation with the most tax-haven subsidiaries, allowing them to dodge taxes, a new consumer report alleges.

“Caterpillar Accused of Demoting Executive Discovering $2 Billion Tax Dodge”:

Caterpillar Inc. used offshore subsidiaries in Switzerland and Bermuda to avoid about $2 billion in U.S. taxes from 2000 to 2009, boosting its earnings through a “tax and financial statement fraud,” according to a Caterpillar executive’s lawsuit.

The company, the world’s largest construction-equipment maker, sold and shipped spare parts globally from an Illinois warehouse while improperly attributing at least $5.6 billion of profits from those sales to a unit in Geneva, according to the suit filed by Daniel J. Schlicksup. He was a global tax strategy manager for Caterpillar from 2005 to 2008.

Schlicksup, 49, sued in U.S. District Court in Peoria, Illinois, in 2009, claiming he was moved to a job that limits his career opportunities because he complained to superiors that the “Swiss Structure” ran afoul of U.S. tax rules.

“Caterpillar threatens to leave Illinois over taxes”:

Caterpillar Inc., suggesting that it could shift jobs out of Illinois, is prodding its home state to cut government spending and roll back tax increases.

What Do We the People Get?

OK, let’s say we give in and ban Buy America policies, and stop requiring that our tax dollars be used to help companies that hire and make things and pay taxes here. So these companies and American workers they employ lose out.

What do we get from that?

Companies like GE and Caterpillar might get a few contracts in other countries. Of course, it will not match the $456 billion U.S. government contracting market – and the $200 million in state-level contracting on top of that – that companies from other countries would get increased access to here. But, hey, GE and Caterpillar don’t care about that.

Meanwhile, companies that used to make things and hire people and pay taxes here would lose out on a share of that government procurement. We would lose the jobs and the tax revenue. Our government funds would be used to help companies in other countries instead of our country. If this created a one-for-one opportunity for companies like United Streetcar to get contracts in other countries that might be another story.

If we ban Buy American in procurement, GE and Caterpillar will continue to hold their profits outside of the U.S. to avoid paying their U.S. taxes. So for all we lose if we ban Buy American, We the People don’t even get the tax revenue back to pay for good schools, don’t get our roads and bridges maintained (never mind modernized), and face constant pressure to cut “government spending,” which means the things We the People do to make our lives better.

But, hey, GE and Caterpillar want Buy America banned, and they’re the ones with the big bucks. That’s why we’re talking about this at all. All of this is one more problem with our trade negotiating process in general and, in particular, the effort to use a fast-track process to rush the Trans-Pacific Partnership through Congress.

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