INTERNATIONAL TAX POLICY'S HARM TO MANUFACTURING AND NATIONAL INTERESTS

Two tax regulations that permit U.S. multinational enterprises (MNEs) to use foreign contract manufacturers and to disregard their wholly owned foreign subsidiaries have created significant tax incentives for MNEs to move manufacturing outside the United States. These tax incentives have contributed to the loss of five million manufacturing jobs and the closure of more than 91,000 plants since 1997. The job losses exacerbated racial and economic inequality and stressed our political system. But the losses arising from offshore manufacturing extend to other areas as well. Offshore manufacturing increases U.S. exposure to supply chain disruptions, threatens national security, and decreases research and development efforts to improve production techniques. Also, as automated manufacturing increases, the use of offshore manufacturing hinders the ability of the U.S. to compete in that sector. The U.S. implementation of a corporate alternative minimum tax in 2023 and the current Organization for Economic Co-operation (OECD) initiative, Pillar Two, which seeks to impose a global corporate minimum tax, may reduce the incentive to offshore in some instances. But the incentives created by the two tax regulations for U.S. MNEs to offshore clearly remain and should be eliminated given the harms they have inflicted and are likely to inflict in the future. This Article proposes two amendments to the regulations to further reduce the tax incentives for offshoring. First, MNEs should not be allowed to use foreign contract manufacturers to qualify for the manufacturing exception in Subpart F of the Internal Revenue Code. Second, MNEs should not be permitted to disregard their wholly owned foreign entities. Under the Chevron doctrine, both proposals would clearly be valid. The Supreme Court's nascent major question doctrine (MQD), however, creates significant uncertainty about the circumstances in which Chevron deference should apply. This Article concludes that even if the MQD applies to eliminate Chevron deference, the so-called "weak form" of the MQD should validate the proposed regulations. © 2023 University of Wisconsin Law School. All rights reserved.