A Project of The Annenberg Public Policy Center

A False Tax Attack

A Democratic ad claims a GOP House candidate pledged to protect breaks for sending jobs abroad. He didn't.


Summary

A new Democratic attack ad accuses a Republican House candidate in Hawaii of signing a pledge protecting tax breaks for sending jobs overseas. It could be a prototype of future attack ads against any number of other Republican House members and candidates, most of whom have signed the anti-tax pledge in question.

But we find the ad to be false. The pledge only protects corporations from an increase in taxation overall. It explicitly allows elimination of any specific tax deduction or credit if matched dollar-for-dollar by an overall cut in rates. And it says nothing about jobs.

Analysis

The Democratic Congressional Campaign Committee announced April 7 that it was running a new attack ad in Hawaii accusing Republican House candidate Charles Kong Djou of signing a pledge "that protects tax breaks for companies that send jobs overseas."

It’s an ad that the Democrats could run against nearly any Republican House candidate, all but a few of whom have signed the anti-tax pledge in question. But the ad is not true.

It was called "blatantly false" by Americans for Tax Reform, the Republican-leaning group that got Djou’s signature on its anti-tax pledge. We agree. ATR’s tax pledge does protect corporations in general — but only from an overall increase in taxes. It says nothing about jobs at all. More important, it does not rule out an overhaul of the tax code. Signers agree to oppose any "net" reduction of deductions or credits "unless matched dollar for dollar by further reducing tax rates." It says:

ATR’s Pledge

I will:
ONE, oppose any and all efforts to increase the marginal income tax
rates for individuals and/or businesses; and
TWO, oppose any net reduction or elimination of deductions and
credits, unless matched dollar for dollar by further reducing tax rates.

That leaves ample room for elimination of any number of special tax breaks so long as the overall level of taxation is not increased. To claim that this "protects" any particular provision of the tax code is simply untrue.

A Faulty Argument

When we asked the DCCC for evidence to support its claim, the group pointed to a "legislative alert" that Americans for Tax Reform issued in 2007. The alert warned that the anti-tax pledge would be violated by a vote for a proposal by Democratic Rep. Lloyd Doggett of Texas. It said that Doggett’s language "takes away a net deduction from the U.S. corporate income tax [and] represents a clear and unambiguous violation of the Taxpayer Protection Pledge."

Doggett’s amendment would have raised corporate taxes by $7.5 billion over 10 years, according to an estimate from the nonpartisan staff of the Joint Committee on Taxation. So it did indeed clearly violate the ATR’s no-tax-increase pledge. It was attached to a farm bill that passed the House July 27, 2007, on a mostly party-line vote with Democrats overwhelmingly in favor and Republicans opposed. The measure caused a partisan uproar. President Bush threatened a veto. The Senate later stripped Doggett’s proposal out of the farm bill, and it was not included in the measure that became law May 22, 2008, after Congress overrode Bush’s veto.

But just as important, the Doggett tax measure did not even address the "tax break" that the DCCC ad addresses. Instead, the measure was aimed at foreign-owned corporations that have operations in the U.S. It was intended to clamp down on their use of overseas tax havens to avoid U.S. taxes, and makes no mention of jobs or employment, or of U.S. firms locating business operations overseas. It is laid out in Section 12001, page 850 of the bill passed by the House. So for more reasons than one, the ATR’s "legislative alert" provides no support for the claim in the ad.

A Minor Issue

The claim that the tax code favors locating jobs overseas has been a Democratic mantra since at least 2004, when John Kerry brought it up constantly in his campaign against then-President George W. Bush. It has some truth to it — but not much. As we reported in 2004, eliminating this incentive would have very little effect on U.S. employment. Multinational corporations based in the U.S. would still retain even more powerful incentives to locate some jobs in other countries, where wages are lower, and where many of their customers live and shop. And anyway, exported jobs account for only a small fraction of those the economy loses. When he was chairman of the economics department at Princeton University, and before he became chairman of the Federal Reserve Board, Ben Bernanke estimated that the total number of jobs lost to "offshoring" was roughly 1 percent of all jobs lost in any given year.

Although this issue has a negligible effect on U.S. employment, it still has powerful symbolic value, especially at a time when the unemployment rate is running at 9.7 percent and 15 million Americans are looking for jobs. And Democrats are growing increasingly worried that they could lose the House seat for which Djou is running. It’s a May 22 winner-take-all election to fill the seat vacated in February by Rep. Neil Abercrombie, who is running for governor. Two Democrats are running, and could split the party vote and allow Djou to win — in President Obama’s native state.

But none of that is an excuse for Democrats to misrepresent anyone’s position. Djou, a Honolulu city councilman with a degree in economics, boasts that he has never voted for a tax increase and would continue pushing for lower taxes in Washington if he wins. We don’t endorse or oppose Djou or his position on taxes. But to characterize his opposition to raising taxes as protecting tax breaks that send jobs abroad is wrong. Any tax benefit can be eliminated and offset by a rate cut or by other benefits without raising taxes overall, and without violating the terms of that pledge. This attack ad is false.

–by Brooks Jackson

Sources

Berlin, Greg. "DCCC Releases New Ad in Hawaii." Democratic Congressional Campaign Committee. 7 Apr 2010.

"Charles and his values." Djou for Congress 2010. 10 Feb 2010.

Radman, Adam. "DCCC Attacks Charles Djou with False Claims about the Taxpayer Protection Pledge." Americans for Tax Reform. 7 Apr 2010.

 "Federal Taxpayer Protection Pledge Signers." Americans for Tax Reform. Undated Web page, accessed 9 Apr 2010.

"Taxpayer Protection Pledge." Americans for Tax Reform. Undated Web page, accessed 9 Apr 2010.

"Legislative Alert: Doggett Language in H.R. 2419, House Farm Bill, is a Violation of Taxpayer Protection Pledge." Americans for Tax Reform. 25 Jul 2007.

"Estimated Budget Effects Of The Revenue Provisions Contained In H.R. 2419, The "Farm, Nutrition, And Bioenergy Act Of 2007," As Passed By The House Of Representatives." The Joint Committee on Taxation, United States Congress. 14 Jan 2008.

"FINAL VOTE RESULTS FOR ROLL CALL 756." Clerk of the House, United States Congress. 27 Jul 2007.

 Morgan, Dan. "On Eve of Vote, Farm Bill Draws Threat of a Veto GOP Fights Tighter Corporate Tax Rules." The Washington Post. 26 Jul 2007.

"PUBLIC LAW 110–234—MAY 22, 2008 122 STAT. 923." U.S. Government Printing Office. 22 May 2008.

"H.R. 2419, Farm, Nutrition, and Bioenergy Act of 2007 (Engrossed as Agreed to or Passed by House). U.S. Government Printing Office. 27 Jul 2007.

Jackson, Brooks. "Kerry Blames Corporate Tax Code for Shipping Jobs Overseas." 28 Jul 2004.

 "Employment Situation Summary." Bureau of Labor Statistics. 2 Apr 2010.

"Issues." Djou for Congress 2010. 12 Feb 2010.