GM Layoffs Result of Trump Tax Plan

Shutterstock (Dmitry Guzhanin)

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On Monday, General Motors (GM) announced it will be shutting down five factories and cutting almost 14,000 jobs in North America. With this announcement just weeks before the holidays, thousands of American families, along with the communities in Maryland, Michigan, and Ohio that they live in, now face an existential financial crisis. GM’s executives and investors, will have no such problems, however, in large part due to the perverse incentives created for corporations as a result of last year’s Republican tax bill.

Over the last year, GM has reported that it’s received a tax cut of about $157 million from cuts to the corporate rate in the new Republican tax code. But rather than use that money to invest in hiring new workers, open new plants, or raise wages, the company has spent nearly $100 million buying back its own shares, a move that almost exclusively benefits top executives and wealthy shareholders. Now after spending $100 million enriching themselves (and paying the company’s CEO $22 million, 295 times more than the average GM employee’s salary), the company’s leadership is claiming it can’t afford to keep its American plants open.

The shamelessness on the part of GM is staggering, but the real problem is that our tax code now actually encourages companies to move American jobs overseas. Instead of saving American manufacturing, Republicans in Congress may have put the final nail in its coffin with their rewrite of the tax code.

As Senator Sherrod Brown (D-OH) has repeatedly said, there is now a clear incentive in the new Republican tax code for corporations to move jobs overseas. Add into the equation the tariffs Trump’s trade wars have necessitated, and it’s a wonder GM hadn’t closed those plants sooner.

Before this year, there used to be less incentive to earn profits overseas rather than in the US, because corporations would ultimately pay the same percentage in taxes, whether it be some to foreign countries and the US, or just taxes here in America. However, Republicans changed this by making the tax rates on income earned overseas half of the tax rate on income earned in the United States. The corporate rate on both US and foreign profits used to be 35% (although tax breaks regularly reduced the actual tax rate companies would pay). Starting this year, however, the US corporate tax rate on domestic profits is 21%, while the foreign tax rate is just 10.5%. Not only that, they also get to subtract foreign taxes paid from what they have to pay the US government. So if they pay more than 10.5% to a foreign government, they will pay no US taxes at all on their foreign profits. It’s estimated the corporate tax reduction alone will cost $1.3 trillion over the next decade, and encourage corporations to focus on overseas production in order to avoid American taxes.

Even worse, the new tax code actually gives a direct tax cut for companies with manufacturing facilities in other countries. Under the new law, companies only pay taxes on foreign profits above a “routine rate of return” on physical assets. Tax jargon aside, that means that the more physical assets, like factories or equipment, you have in other countries, the less you have to pay in American taxes. What we’re seeing with GM is the predictable result of such a policy. There’s simply no financial reason for most corporations to continue to produce their products in the United States if they can do so in other countries virtually tax-free.

GM won’t be the last corporation to shutter US facilities and move jobs overseas. This isn’t a one-off tragedy, it’s just another domino falling as Republican tax policies push American jobs overseas. Their tax bill may have made GM’s shareholders and executives a lot of money, but for the thousands of workers who are getting pink slips for the holidays, that’s a poor consolation.

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