An Economist Finds Herself in the Political Cross Hairs

On Monday, President Obama made fun of Mitt Romney’s jobs plan, citing a commentary by an economist who estimated that his proposal to shift to a so-called territorial corporate-tax system—that is, to exempt American corporations from taxes on their foreign income—would cause them to move their operations overseas, creating 800,000 jobs in other countries.

The commentary was by Kimberly A. Clausing, a professor of economics at Reed College, and published in Tax Notes. She doesn’t mention Mitt Romney by name, writing that “others” are pushing for such a system, but it’s clear who she’s talking about, and it’s obvious that she thinks it’s a bad idea.

“U.S. tax payments for the income from foreign operations of U.S. multinational corporations would not simply be deferred; they would be completely erased,” she writes. “That would eliminate constraints on shifting income abroad.”

Clausing counters the claim that moving to a territorial system would put the United States on the same footing as many of its trading partners. Their systems, she writes, have built-in safeguards that prevent companies from moving their operations elsewhere to avoid taxes. "[T]he hybrid systems used by our largest trading partners have more in common with the reforms suggested by the Obama administration,” Clausing writes.

Most articles in Tax Notes don’t get specifically mentioned by sitting United States presidents (another commentary in the issue, titled “The Case Against E-Filing,” while engaging, is unlikely to generate the same buzz). After a Romney spokesman pointed out that Clausing had donated money to Obama, The Weekly Standard reported that Clausing had given just under $500 to Obama for America in the last year. Even middle-of-the-road ABC News noted that Clausing was an Obama donor.

Clausing was kind enough in the midst of a “very busy day” yesterday to answer some questions about becoming a talking point in a presidential campaign:

Q. Did you have any idea that President Obama was going to cite your paper?

A. I know that the Obama campaign is interested in these issues, and I’m not surprised that campaigns are interested in this kind of research. In this economy, how international tax incentives affect the location of economic activity and profits is an important and very timely issue.

Q. A Romney campaign spokesman said there is “nothing nonpartisan about one of your [Obama’s] donors"—presumably meaning that, because you’ve given money to Obama’s campaign, your article is biased in the president’s favor. A number of news outlets, including The Weekly Standard and ABC News, have made a point of saying that you’re an Obama donor. So I guess the question is: Are your scholarly conclusions in this paper influenced by your politics?

A. I’ve been doing this sort of economic research for 20 years, and much of it is available on my Web site. My work has been published in top peer-reviewed journals, and it has attracted funding from many prominent sources. I am motivated to pursue intellectually honest answers in every case, not by any any particular political aim, and my work is as careful and honest as I can possibly make it. That said, some say the truth has a partisan bias. Some facts just happen to line up with one party more than the other. For instance, most scientists believe in climate change, but that does not mean they are partisan.

Q. You write that your estimates are based on your research and that of other experts. How controversial is the idea among experts that shifting to a pure territorial system would “encourage job creation abroad instead of at home”?

A. In part, this depends on the details of the territorial system that is adopted. I think most economists would agree that a pure territorial system without protections to safeguard the tax base would have the effects I describe. I think you could design a territorial system that was “tougher” than the current system and that did not have as many ill effects, but such a system is very unlikely in practice, given the U.S. political process.

Q. What’s the reaction been like? Any hostile e-mails or phone calls?

A. Most of the news coverage is mixed. Informal reactions vary. A bit of hate mail from zealots, and some complimentary blog posts, too ....