Mish has a great post on this (even if you don't agree with his political slant). Much has been made of labor being moved to overseas for wage reasons, but taxes are very important too:
In 2004, U.S.-based multinational corporations paid about $16 billion in U.S. taxes while earning about $700 billion offshore, an effective tax rate of about 2.3 percent, according to the administration statement...
Clinton administration officials realized they also had made it easy for multinationals to create entities whose only purpose was to shift profits into low-tax countries and out of reach of the tax authorities, according to a January Government Accountability Office report that found 83 of the 100 biggest companies had subsidiaries in tax havens.
Once the assets were in the haven, the U.S. parent company borrowed from the subsidiary. The interest payments were deductible in the U.S. and tax-free in the haven, the GAO said. The nonpartisan congressional Joint Committee on Taxation recommended in 2005 that the rules be repealed.
And:
As you work on your taxes this month, here's something to raise your hackles: Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do--that is, if they pay taxes at all.
The most egregious example is General Electric (GE). Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion.
How did this happen? It's complicated. GE's tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. Inside you'll find that GE in effect consists of two divisions: General Electric Capital and everything else. The everything else--maker of engines, power plants, TV shows and the like--would have paid a 22% tax rate if it was a standalone company.
It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. ...
It only makes sense that multinationals "put costs in high-tax countries and profits in low-tax countries," says Scott Hodge, president of the Tax Foundation. Those low-tax countries are almost anywhere but the U.S. "When you add in state taxes, the U.S. has the highest tax burden among industrialized countries," says Hodge. In contrast, China's rate is just 25%; Ireland's is 12.5%.
Corporations are getting smarter, not just about doing more business in low-tax countries, but in moving their more valuable assets there as well. That means setting up overseas subsidiaries, then transferring to them ownership of long-lived, often intangible but highly profitable assets, like patents and software.
Large corporations never did have much hiring during the last expansion, as they focused primarily on international growth. The majority of jobs and nearly all of the job creation is now at small businesses, which by all accounts are doing terribly. Multi-Nationals may indeed produce new innovation and products as Daniel Gross suggests, but I think he overlooks the reality of the situation: nearly all the materials, manufacturing and increasingly the design will be done overseas. In fact a lot of large companies are "American" as much for political protection and benefits as much as anything else. And for that, we see a pittance in tax collection.
The companies where this is not an accurate characterization (e.g. Google and the like) not only have few employees in the scheme of things, but will increasingly move overseas. As Mish's reader pointed out, good old IBM has reduced American worker headcount by 30% in the last five years and now has 70% of its workers in foreign locales. Low economic growth in the US and increased taxes will exacerbate this trend unless we change other policies.
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