J. Clifton Fleming Jr. (BYU; Google Scholar), Robert J. Peroni (Texas) & Stephen E. Shay (Boston College; Google Scholar), The U.S. Tax System’s Curious Embrace of Manufacturing Job Losses, 185 Tax Notes Fed. 35 (Oct. 7, 2024):

In this article, the authors explain how the subpart F regime and the global intangible low-taxed income regime together contribute to a long-running decline in domestic manufacturing employment, and they argue that the best approach to fixing the problem is worldwide taxation without deferral, not pillar 2.

Conclusion
This article focuses on manufacturing income earned by U.S. multinational corporations through their CFCs because that is the scenario in which most foreign-source manufacturing income is earned by U.S. residents. The GILTI system of taxing that income at rates of zero percent or 10.5 percent, instead of the normal 21 percent U.S. corporate rate, is clearly a costly tax expenditure that encourages U.S. multinationals to either move manufacturing jobs from the United States to low-tax foreign countries or create manufacturing jobs in those countries instead of in the United States. This is unsatisfactory policy in the light of both the long-term decline in U.S. manufacturing employment since 1979 and the slow recovery of that employment even after the job-stimulating provisions of the CHIPS Act and the Inflation Reduction Act. The correct response is for Congress to enact legislation providing that all CFC income bear a current U.S. tax at the regular corporate rate.

We have touched on features of the U.S. international income tax system — including the treaty network — that encourage foreign corporations planning to sell manufactured goods on the U.S. market to locate the related manufacturing facilities outside the United States. Our response to that concerning phenomenon is reserved for a future article.

Editor’s Note:  If you would like to receive a daily email with links to tax posts on TaxProf Blog, email me here.