Should We Penalize Companies for Shipping Jobs Overseas?

It's a popular argument these days. If U.S. multinationals are going to ship jobs overseas, let's make it more difficult by adding taxes on their so-called outbound investments.

A majority of Americans believe, according to recent polls, that job outsourcing is a root problem for why the economy is performing so poorly. So a tax would not only be a popular political solution, but also protect against further domestic job loss and raise a significant amount of cash for the country.

Except, this solution isn't supported by the facts, according to Harvard Business School finance professor Mihir Desai. The author doesn't argue against the notion of America job loss, but rather that the losses can't be attributed to multinationals expanding their operations across borders.

In a new working paper called Securing Jobs or the New Protectionism? Taxing the Overseas Activities of Multinational Firms, Desai scours the relevant research to find no evidence that foreign activity necessarily displaces domestic activity; in fact they are complementary and, some studies conclude, net-net beneficial to the home country. When firms expand overseas, resulting growth benefits the home company in the form of greater investment and increased employee compensation.

Concludes Desai:

"Much as the formulation of trade policy requires resisting the tempting logic of protectionism, the appropriate taxation of multinational firms requires a similar fortitude."