1. “Multinational Taxes, Profits, and Jobs” A Short Story in Six Parts

2. Part 1. Reported Effective Tax Rates are Falling

3. Source of the data Start with 100 most profitable corporations
80 corporations with almost ½ of total US profits
Annual Report income tax footnotes
Average effective rate
Average effective rate

5. Effective Corporate Tax Rates in Annual Reports for 80 Corporations
Average
Average
Change

6.
Change 1
Freddie Mac
28.9%
10.2%
-18.72% 2
Occidental Petroleum
55.0
37.7
-17.33 3
Phelps Dodge
35.5
18.4
-17.10 4
Cisco Systems
40.9
26.0
-14.87 5
General Electric
29.6
17.4
-12.23 6
Morgan Stanley
38.2
26.4
-11.80 7
United Parcel Service
46.4
34.7
-11.70 8
AT&T
-11.30 9
Altria Group
40.3
29.5
-10.77 10
Dow Chemical
34.9
24.7
-10.19 11
Anadarko Petroleum
47.0
37.1
-9.98 12
MetLife
37.3
27.6
-9.69 13
Verizon Communications
38.8
29.2
-9.60 14
Boeing
25.2
15.7
-9.49 15
Coca-Cola
33.4
24.0
-9.33 16
Lockheed Martin
27.9
-9.15 17
Texas Instruments
32.3
23.5
-8.78 18
Disney
42.4
34.2
-8.23 19
Alcoa
31.6
24.1
-7.53 20
Oracle
36.5
29.0

7.
Change 21
Qualcomm
25.6
18.1
-7.45 22
Merrill Lynch
33.8
27.1
-6.67 23
Citigroup
35.5
28.8
-6.63 24
Microsoft
35.6
29.1
-6.53 25
J.P. Morgan Chase
36.2
29.7
-6.49 26
TXU
36.0
30.1
-5.95 27
U.S. Bancorp
37.5
31.7
-5.85 28
Pfizer
26.6
21.0
-5.57 29
Allstate
29.8
24.2
-5.53 30
Wells Fargo
39.4
34.0
-5.43 31
Wyeth
28.5
23.1
-5.39 32
Hewlett-Packard
27.7
22.3
-5.37 33
Chevron
47.6
42.4
-5.23 34
Intel
34.4
29.2
-5.20 35
Honeywell Intl.
26.9
-4.73 36
Dell
30.0
25.4
-4.63 37
Procter & Gamble
34.7 38
SunTrust Banks
34.6
-4.58 39
Bank of New York Co.
36.3
32.0
-4.30 40
Bear Stearns
38.1
-4.07

8.
Change 41
Apache
40.9%
37.1%
-3.83% 42
ConocoPhillips
47.3
43.6
-3.67 43
Caterpillar
31.9
28.2 44
Wal-Mart Stores
37.1
33.6
-3.43 45 3M
35.7
32.3
-3.40 46
United Technologies
30.0
26.7
-3.27 47
Bank of America Corp.
36.4
33.3
-3.14 48
Capital One Financial
37.7
34.9
-2.84 49
PNC Financial Services Group
34.3
31.5
-2.83 50
Baker Hughes
36.0
-2.72 51
Loews
32.0
29.3
-2.67 52
McDonald's
32.4
29.8
-2.57 53
Washington Mutual
38.9
36.5
-2.41 54
Hartford Financial Services
23.1
21.0
-2.11 55
Motorola
32.5
30.5
-2.07 56
Home Depot
39.0
37.3
-1.66 57
UnitedHealth Group
-1.30 58
National City Corp.
33.7
32.6
-1.17 59
Amgen
27.2
-1.07 60
Target
38.8
37.8
-1.03

9. Intl. Business Machines 32.3% 31.3% -1.00%
Change 61
Intl. Business Machines
32.3%
31.3%
-1.00% 62
Merck
31.9
31.0
-0.97 63
Johnson & Johnson
27.9
27.1
-0.80 64
Berkshire Hathaway
33.4
32.7
-0.78 65
Countrywide Financial
39.0
38.7
-0.27 66
Travelers Cos.
24.6
24.7
0.03 67
Burlington No. Santa Fe
37.4
0.07 68
Valero Energy
32.8
32.9
0.15 69
American Intl. Group
28.9
29.3
0.40 70
American Express
27.5
28.0
0.52 71
Anheuser-Busch
38.1
39.3
1.17 72
Lowe's
36.4
38.3
1.90 73
Wachovia Corp.
29.6
32.1
2.43 74
Lehman Brothers Holdings
29.7
32.5
2.80 75
Wellpoint
35.7
3.03 76
Eli Lilly
24.4
29.0
4.53 77
Marathon Oil
32.3
39.1
6.85 78
Chubb
16.8
26.3
9.50 79
Exxon Mobil
42.9
10.02 80
Apple
8.6
28.7
20.10

10. Negative changes
Positive changes

11. Part 2. WHY rates are falling?

12. Source of the data Annual Report Income tax footnote
Reconciliation of Statutory and Effective Tax Rate

13. What caused the four percentage point decline?
2.9 percentage points due to lower taxes on foreign earnings
0.5 percentage points due to lower state and local income taxes
0.5 percentage points due to increase in favorable audit adjustments

16. WHAT is behind decline in foreign effective tax rate?
Part 3.
WHAT is behind decline in foreign effective tax rate?

17. Source of the data U.S. Department of Commerce,
Bureau of Economic Analysis
Annual survey
Aggregate data
Latest year available is 2005

18. Three possibilities Lower foreign tax rates
Shift of real activity out of high-tax countries [ jobs ]
Profit shifting in excess of movements in real activity [ revenue ]

19. Note: Rates include sub-national taxes.

20. All Three Possibilities in Play
Average foreign ETR did decline from 31.8 in 1999 to 28.6 in 2004
Multinational foreign business activity increases by 43 percent
Multinationals increase foreign profits by 72 percent
Each of these three factors contribute about equally to declining foreign effective tax rates

21. HOW MUCH profit shifting out of the United States?
Part 4.
HOW MUCH profit shifting out of the United States?

23. Part 5.
What are the facts on domestic vs. foreign job creation by U.S. multinationals?

24. “For every one job U.S. multinationals created abroad in their foreign affiliates they included nearly two U.S. jobs in their parent operations.”

26. What role do taxes pay in foreign job creation?
Part 6.
What role do taxes pay in foreign job creation?

27. Employment (thousands)
Change in Foreign Employment by U.S. Multinationals Corporations Between 1999 and 2005
Employment (thousands)
2005 ETR
2005 Avg. Compen-sation
Level in 2005 (000’s)
Growth between 1999 and 2005
All countries
8,955.8
1190.0
28.7%
$38,958
1. China
489.6
237.2
18.7%
$8,750
2. India
179.1
116.9
28.2%
$11,167
3. United Kingdom
1,160.6
101.0
46.9%
$60,403
4. Canada
1,079.1
74.9
26.2%
$39,453
5. Mexico
838.4
57.6
27.2%
$13,459
6. France
584.1
53.7
33.2%
$49,351
7. Brazil
393.3
44.5
34.3%
$19,367
8. Indonesia
102.7
41.1
41.8%
$10,750
9. Italy
225.5
37.3
39.9%
$51,601
10. Korea
83.0
36.9
22.5%
$38,819
11. Poland
94.4
35.9
14.8%
$16,123
12. Japan
242.0
34.7
40.2%
$83,566
13. Sweden
104.8
32.4
58.0%
$63,254
14. Australia
283.9
31.4
16.7%
$50,049
15. Russia
55.7
26.7
29.2%
$14,219
16. Spain
192.2
25.7
30.8%
$46,436
17. Netherlands
184.3
18.8
31.9%
$61,042
18. Switzerland
72.7
18.0
13.0%
$83,301
19. Thailand
119.6
17.3
25.8%
$8,955
20. Czech Republic
59.6
16.1
23.1%
$16,762

31. For More Details
“Reported Corporate Effective Tax Rates Down Since Late 1990s,” Tax Notes, Feb. 25, 2008, p. 882.
“Why Reported Effective Corporate Tax Rates Are Falling,” Tax Notes, Mar. 3, 2008, p. 977.
“U.S. Multinationals Shifting Profits Out of the United States,” Tax Notes, Mar. 10, 2008, p
“U.S. Multinationals Paying Less Foreign Tax,” Tax Notes, Mar. 17, 2008, p
“Offshore Jobs and Taxes: Will Democrats Attack?” Tax Notes, Apr. 7, 2008, p. 24.
“U.S. Multinationals Moving Jobs to Low-Tax, Low- Wage Countries,” Tax Notes, Apr. 14, 2008, p. 119.