By Gov. Jerry Apodaca
Thirty years ago, when I was governor of New Mexico, the world of commerce was markedly different. China’s economic rise was still on the horizon, international trade was hindered by a variety of barriers, and exports accounted for only a small percentage of the U.S. economy.
All of this has changed dramatically in the last two decades as the result of innovation, diplomacy and new public policies in the United States and abroad.
The United State cannot turn back the clock — nor should it try. Unfortunately, a key component of a new proposed federal tax plan would do just that by imposing an estimated $200 billion levy on the overseas operations of U.S. businesses. This new tax burden would impair American companies’ abilities to compete in global markets — and sustain and create jobs here at home.
Ultimately, it is an unsound public policy because our nation cannot unilaterally change the rules of business overseas and not expect everyone from those in Washington to those in my hometown of Las Cruces to feel the pain.
Territorial versus worldwide tax systems
The vast majority of developed nations apply a “territorial” tax system to companies operating abroad. Under this system, a company pays taxes in the nations where it earns revenues, but does not pay additional taxes to its home nation for these overseas revenues. In recent years, Japan and the United Kingdom have switched to territorial systems to help their nation’s companies remain competitive abroad.
The United States does not employ a territorial tax system. Our nation and just a few other countries, such as South Korea, Mexico and Poland, use a “worldwide” tax system. The home nation collects some tax on overseas operations.
The new U.S. tax proposal would move further in this direction by eliminating policies that were put in place to protect our global companies from these differences in tax burden, so they would make us less competitive. The United States would stand alone with one of the highest burdens in the world.
The end of these traditional tax policies would essentially amount to a $200 billion new tax on U.S. companies operating overseas. This new expenditure would mean less money to invest in expansion, less money for research and development, and less money for new jobs.
To be sure, some of these curtailed investments would impact other nations, but the loss would be felt deeply in the United States as well. The extensive U.S.-based operations supporting foreign commerce would be hampered. In addition, American companies with overseas business conduct the majority of their research and development in the United States — research and development investment that would be hurt by the new policy and slower growth in foreign revenue.
In New Mexico…
Southern New Mexico has gone to great lengths to expand economic development efforts in the last few years. Unfortunately, numerous industries in the region would not be immune to the adverse impact of this new federal tax plan. The oil and gas industry, which until recently experienced explosive growth, would be acutely affected because much of its product and profit is derived from foreign countries. The risk for job loss would substantially increase in a part of the state where jobs are so desperately needed.
The other visible casualty in New Mexico would likely be computer chip leader Intel, which employs several thousand people in our state. We could see job growth slow at Intel — the state’s largest private sector industrial employer. Smaller New Mexico businesses that provide goods and services to larger international companies would be hurt as well.
Companies facing new tax burdens would likely do more than just rein in spending to make up for the deficit: They would also raise prices. These price increases might be small, but they would ultimately be passed on to smaller companies and consumers. In other words, we would all pay some part of this new tax.
It goes without saying that I am a tremendous supporter of President Obama. He has placed our nation once again on a positive path to strengthen the middle class and help out working people. Now is not the time to move backward in out trade policies and handicap our already struggling industries.
Apodaca, a Democrat, was governor of New Mexico from 1975-1979.