How Tommy Fleeced Wis Taxpayers for GM

Just provide “job creators” with the capital they need, and America will experience a remarkable economic revitalization, argues Republican Wisconsin Senate candidate Tommy Thompson.

But he tried that with GM, and it blew up in the faces of the workers in Janesville.

Thompson should by now recognize that handing out tax incentives to corporations is no guarantee of job creation, or even holding on to existing jobs like the 2,800 lost when the Janesville GM plant closed at Christmas 2008, despite some $34 million in various forms of state subsidies.

Then-Gov. Thompson is shown in the picture accompanying this story presenting an $8.25 million check from Wisconsin taxpayers in 1990 to then-GM CEO Roger Smith (who gained notoriety for the wave of GM plant closings devastating Flint, Mich. as memorably depicted in Michael Moore’s documentary “Roger and Me”).

Gov. Tommy Thompson presenting an $8.25 million check from Wisconsin taxpayers in 1990 to then-GM CEO Roger Smith (“Roger and Me”)
Lisa Wells received a home visit from the Capitol Police with these two citations. Photo by Rebecca Kemble

While Thompson was handing GM’s CEO a multi-million check for supposedly training for “training” an already-experienced workforce in Janesville, and while GM was raking in over $4 billion in profits, the company was soon making plans for a new plant in Silao, Mexico, that duplicated the product line of Suburban vehicles being produced in Janesville.

After the GM plant closed, Silao’s low-wage workforce—at about 1/10 the wages sustaining Janesville families—has been kept employed making full-size pickups and with $200 million in new investment.

Thompson has joined the Mitt Romney and Paul Ryan chorus calling for an end to the taxation of the foreign operations of US-based corporations. That would suit GM just fine and would encourage more transnational firms to continue shutting US plants and expanding offshore. (Thompson’s staunchly progressive opponent Tammy Baldwin has been especially outspoken against corporate offshoring and the tax breaks that help fuel them.)

The “territorial” tax proposal is being sold as a bold gesture to provide job creators with badly needed capital. But U.S. CEOs are already sitting on an unprecedented pile of un-invested capital and hardly need more income or profits, and handing out enormous tax breaks to footloose corporations is not a substitute for a real jobs policy. What’s more, a tax emption would constitute a major raid on the US Treasury.

Accordingly, the Romney-Ryan plan has been justly criticized as providing a major new incentive—along with the low wages and total management control prevailing in China, Mexico, and other repressive sites favored by transnational corporations—to relocate even more jobs from the US. The toll has already been immense, with major US firms liquidating 2.9 million jobs in the US while creating 2.4 million jobs overseas during the 2000-10 period (Wall St. Journal, 4/19/11).

To sidestep this critique, Thompson proposes on his website that he would adopt the basic Romney-Ryan concept, but add some conditions that prove to be meaningless. “Tommy will pursue a policy of zero taxation on foreign profits repatriated to the U.S. when those profits are used for investment in plant and equipment, job training or research and development,” his website declares.

“This is a terrible idea,” insists David Cay Johnston, Pulitzer Prize-winning journalist specializing in tax issues and author of the just-published Fine Print: How Big Companies Use ‘Plain English’ to Rob Us Blind. “There isn’t enough demand. Wages are flat. The whole trend and direction now is to drive down wages in the global economy.”

Thus, America is not plagued by a shortage of capital, but a lack of consumer spending and low wages that dampen spending power, making it pointless for businesses to invest for the domestic market, Johnston argues. “An unbelievable ocean of cash is available for investment, but the demand is not there,” he maintains. “U.S. corporations are sitting on an incredible $6 trillion in savings, with $1.5 domestic held domestically and $4.5 overseas.”

Moreover, he said, “A lot of profits held offshore were actually earned in the U.S. Corporations send money from their right U.S. pocket to their left pocket overseas, and call it a deduction.”

Corporate profits are purportedly taxed at a 35% rate--but minus deductions that makes the average corporate tax rate about 13%-- according to the Citizens for Tax Justice when corporations bring home or “repatriate” their profits. “If a corporation brings home a billion dollars and invests it, they get a 100% write-off immediately, thanks to the most business-friendly president in US history, Barack Obama,” explains Johnson. That’s due to a provision called “expensing.”

However, that is still insufficient for the Republicans and their corporate allies. “They want to save $350 million bringing a billion back into the country, and then get another $350 million for their investment, That’s a $700 million return based just on repatriating $350 million and investing it, an incredible return.”

It is precisely such tax maneuvers—like the write-off on U.S. taxes for moving equipment and machinery offshore—that have persuaded so many U.S. citizens that the tax system is stacked against them.

Roger Bybee is a freelance labor reporter who writes frequently for The Progressive, In These Times, and Z magazine. He wrote the cover story "The Truth About Paul Ryan" for The Progressive in March 2011.