Taxation and U.S. Multinational Investment

Abstract

In 1985, nonbank U.S. multinational companies employed 24.5 million workers, had worldwide sales of almost $3.5 trillion, and net income of $150 billion on assets of $4.2 trillion. The foreign (non-U.S.) affiliates of these companies had 6.4 million employees, $900 billion of those sales, and $43 billion of net income, with assets of $838 billion. United States multinationals accounted for roughly three-quarters of total American merchandise exports in 1985 and half of total imports, with approximately 40 percent of each category arising from transfers within U.S. multinationals between American parent firms and their own foreign affiliates. And 1985 is widely regarded as a sluggish year for U.S. multinationals. By any measure, U.S. multinationals play an important role in the world economy. Yet multinational corporations operate in economic and legal environments that are often extremely complex and subject to abrupt changes. Volatility in exchange rates is one recent example of such changes; the U.S. Tax Reform Act of 1986 (TRA) is another. The recent U.S. tax change seems likely to have a considerable effect on the net earnings U.S. multinationals can expect to get abroad.