Trump abandons campaign promise to penalize outsourcing, offers tax breaks instead

Donald Trump is offering sweet incentives to stop Carrier from outsourcing jobs. Bernie Sanders is promising strict penalties.

SOURCEThink Progress

Everyone is trying to stop Carrier from moving jobs to Mexico.

Earlier this year, the air conditioner and furnace giant, along with its parent company United Technologies, announced that it planned to relocate operations currently headquartered in Indiana to Mexico over the next three years, potentially moving more than 2,000 American jobs in the process.

If the company were to move, it would epitomize the very economic harms that Donald Trump campaigned against. He called Carrier out by name on the campaign trail, arguing that its plans to shift jobs out of the United States is an example of the failure of trade agreements like NAFTA.

So the president-elect is now in the middle of negotiations with the corporate giant in an effort to keep the jobs on U.S. soil. He’s not the only lawmaker interested in halting Carrier’s plans: Sen. Bernie Sanders (I-VT) has also promised to take action. But the two men are considering very different strategies when it comes to halting the offshoring of American jobs, and Trump appears to be backing away from striking promises he made during the campaign.

Both Carrier and the Trump administration have confirmed that the two sides are in talks, and according to sources at the New York Times and Wall Street Journal, the negotiations are a two-way street, with both the company and administration officials discussing concessions. In order for Carrier to keep jobs in the U.S., the Trump administration has discussed relaxing business regulations and backing away from campaign pledges to impose tariffs on companies that move jobs abroad, according to the Times.

The other concession under discussion, according to the Journal, is indulging the company’s desire for favorable changes to the tax code. One particular offer could be a tax holiday on overseas profits, given that United Technologies held 85 percent of its total cash, coming to more than $6 billion, overseas as of the end of last year.

Currently, U.S. corporations can indefinitely delay paying American taxes on money made abroad by keeping it abroad, but Trump has pledged to give U.S. corporations a one-time 10 percent tax rate on overseas profits as a way of enticing them to bring the money back. Evidence from past attempts at this very strategy, however, showed that companies simply used the break to bring their money back and give it to wealthy investors, rather than investing it in American jobs or the economy. The same thing is likely to happen this time around.

Another incentive for Carrier to keep jobs in the country could be an overall lower corporate tax rate. Trump has already proposed more than cutting the rate in half, lowering it from its current level of 35 percent to 15 percent.

These enticements stand in striking contrast to the harsh rhetoric Trump used on the campaign trail. At an April rally near Carrier’s Indianapolis plant, he promised to impose a 35 percent tariff on any air conditioning units it built in Mexican plants and then imported to the U.S. He predicted that would prompt the company to call him and say, “Sir, we’ve decided to stay in the United States.” Some Trump voters who currently work for Carrier have even said they will vote against him if he doesn’t impose such a tariff.

The administration’s current approach also stands in contrast with the one Sanders is vowing to take. Over the weekend, Sanders promised to introduce new legislation he’s calling the Outsourcing Prevention Act, which he says is not just aimed at penalizing Carrier but at any company that moves jobs outside the country.

His bill would do a variety of things: prevent companies that outsource more than 50 jobs from receiving federal contracts or tax breaks and other financial incentives; claw back any federal tax breaks or loans they’ve received over the prior decade; impose a tax on them either equal to the amount of money they save by shifting production elsewhere or 35 percent, whichever is higher; crack down on high executive compensation at these companies through tax penalties; and prevent them from buying back their own stock, thus inflating their stock price.

United Technologies would be particularly vulnerable to this plan, given that it is one of the largest military contractors, receiving more than $5 billion a year from the federal government, a sum that makes up 10 percent of its revenue. This penalty has also been brought up by other lawmakers, including Sen. Joe Donnelly (D-IN), who wants the government to weigh the outsourcing of jobs as a factor when it decides which companies to award federal contracts.

“I call on Mr. Trump to make it clear to the CEO of United Technologies that if his firm wants to receive another defense contract from the taxpayers of this country, it must not move these plants to Mexico,” Sanders said in a statement.

“President-elect Trump made a promise during the campaign that he would prevent all of these jobs from being shipped overseas,” the statement continued. “The Outsourcing Prevention Act would make sure that Donald Trump keeps this promise.”

Carrier doesn’t plan to start moving operations to Mexico until the middle of next year, leaving some time to alter its plans. But it’s yet to be seen if any lawmakers can stop the shift, given the company has estimated that its savings from doing so will come to $65 million a year.


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Bryce Covert is the Economic Policy Editor for ThinkProgress. She was previously editor of the Roosevelt Institute’s Next New Deal blog and a senior communications officer. She is also a contributor for The Nation and was previously a contributor for ForbesWoman. Her writing has appeared on The New York Times, The New York Daily News, The Nation, The Atlantic, The American Prospect, and others. She is also a board member of WAM!NYC, the New York Chapter of Women, Action & the Media.