SEIU’s Andrew Stern Endorses Corporate Tax Break, But What Does It Mean?

Andrew SternIs Andrew Stern, the retired president of the Service Employees International Union, a born-again capitalist? That’s the emerging view at SEIU headquarters in downtown Washington, D.C. and various points beyond. For months, Stern, who stepped down last spring after 14 years at the helm, has been championing a proposal to grant a limited-period tax break for U.S. corporations on investment income earned abroad and transferred to here. Stern’s allies in the labor movement are shaking their heads in disbelief. His union enemies are saying, “I told you so.” Many in the business world are welcoming him like an old friend. Yet the real story may be that Stern is being his old self: a believer in a large-scale government-corporate-union partnership to generate jobs – preferably union ones.

Among contemporary union leaders on the left side of political activism, Andrew Stern surely ranks as one of the most vocal and powerful. From his early days in the Seventies as a Philadelphia social worker and union organizer through his tenure as SEIU chieftain during 1996-2010, Stern has pushed for a progressive national economic program of the sort regularly advocated in the pages of The Nation or The American Prospect. When he retired last spring, suddenly and inexplicably, he went out a political winner. Having endorsed Barack Obama for president during the early primary season, he enjoyed constant access to the Obama White House as a lobbyist all but in name. In 2009, with large Democratic majorities controlling the House and Senate, payback time had arrived. Stern and other labor leaders worked tirelessly for major increases in public spending. They sought a government takeover of General Motors and Chrysler. And they pushed Congress to create an expensive health care law containing a mandate for each household to buy insurance coverage. In each case, they won.

In retirement, Andrew Stern has morphed into a capitalist tool – so says the growing conventional wisdom. In addition to serving as president emeritus at SEIU and senior research fellow at the (Georgetown University-affiliated) Georgetown Public Policy Institute, he sits on the board of the New York-based Siga Technologies, Inc., a publicly-traded biomedical defense company heavily controlled by equity fund manager-philanthropist Ronald Perelman, whom Forbes magazine last year listed as having a net worth of $11 billion. Stern appears, at least superficially, to harbor second thoughts about his radicalism during his tenure as Service Employees president. “I was awfully tough on the private equity and the banks,” he recently told Bloomberg TV’s Judy Woodruff. “Some of it was totally appropriate; other of it probably was a little bit out of hand.” Such a statement, while far from a recantation, reveals at least some accommodation with reality.

What has many in the business world buzzing these past few weeks is his tireless advocacy for a tax break for multinational corporations. Let’s backtrack a bit: Last September 9, Stern wrote a guest column, “It’s Time to Put America Back to Work,” on Washington Post domestic policy wonk Ezra Klein’s blog site. The former SEIU leader recommended three steps that he claimed, taken together, would create nearly 12 million American jobs. His second initiative, “Corporate Repatriation Dollars to Fund Infrastructure Jobs,” would be a one-time dramatic reduction in the tax rate on foreign earnings of U.S. companies. Such a move, Stern argued, at once would discourage American corporations from parking earnings in foreign tax havens and boost investment here. He laid out his case this way:

So, let’s revisit the idea of a one-time repatriation tax break. I’m talking about a tax on past foreign earnings with a twist. We put the government’s share of the money; say $30 billion, into an Infrastructure Bank. We could also put the money into a Green Bank or other long-term job creation programs. That $30 billion would leverage $180 billion more in investment.

For every $1 billion in infrastructure spending, 40,000 direct and indirect jobs are created. Even without leverage, we could create 2.4 million jobs with this funding. With leverage, 8.4 million direct and indirect jobs could be created and we could create the 21st century infrastructure system we need in this country.

Stern estimated that this measure would constitute a net zero cost to taxpayers.

A closer look would be in order. The temporary foreign income tax, which Stern elsewhere has stated would be 5.25 percent, is certainly far lower than the current effective rate of 35 percent, minus the amount already taxed by the corresponding foreign government where earnings accrued. That’s an impressive cut. And given that American companies long have complained of what amounts to double taxation on foreign earnings, many are likely to take the offer. The lower rate would serve as a clear incentive to plow profits into domestic activity.

Yet there also is the “fine print.” For one thing, Stern’s claim of 8.4 million jobs rests on the assumption that $1 billion in spending has a multiplier effect of 40,000 direct and indirect jobs. That works out to $25,000 per full-time job in combined wages and benefits. In the area of infrastructure construction, such an income likely would be on the low side even by nonunion standards. And Andrew Stern is not the type to call for nonunion jobs. Moreover, the tax cut, being on a one-time basis only, would have to be made permanent to continue to create the promised jobs. Most problematic, the recapture of income would be directed toward quasi-public corporations, or “banks,” whose executives presumably would be positioned to determine the most useful projects and technologies. This is an expression of the Left’s defining stakeholder principle that corporate management and boards have an obligation to place the interests of the general public over those of shareholders. Even if the public paid no extra taxes, the proposal assumes that once in government hands, tax revenues shouldn’t be returned to businesses or households.

Overall, the three elements of Andrew Stern’s growth initiative – “Adopt Job Sharing,” “Corporate Repatriation Dollars to Fund Infrastructure Jobs,” and “Full Employment for Our Children: AmeriCorps and the Kennedy National Service Bill ‘On Steroids'” – constitute explosive growth in the public sector. The total cost would be $130.5 billion. Stern assures the reader that the result would be 11.8 million new jobs at no taxpayer cost. This appears a case of wishful thinking applied to the dirigisme economic policymaking model common to Western Europe, especially France. Stern, of course, has his rationalization. “(T)he numbers should not scare anyone,” he wrote. “If we can afford to pay nearly $800 billion to bail out a few Wall Street banks, we can afford one-sixth of that amount to create nearly 12 million jobs.”

Stern has been increasing his profile lately, and to the applause of the business community. He spoke on behalf of his corporate tax cut and other initiatives this June 15 at a panel discussion sponsored by the Washington, D.C.-based think tank Third Way, and later that evening on Larry Kudlow’s “Kudlow & Company” show on CNBC-TV; Kudlow remarked on the air that he was “delightfully surprised” at Stern’s remarks. The normally astute Joe Kernan, apparently with no irony, told Stern on CNBC’s “Squawk Box” on June 16, referring to Stern’s appearance on Kudlow: “I’m all choked up. Honestly, I’m so gratified at everything you said last night.” And Loews Corp. CEO James Tisch wrote a guest opinion piece last September 24, 2010 for the Wall Street Journal, “Andy Stern Sees the Light on Overseas Profits.” He wrote: Stern “gets it,” adding, “Does Congress?”

Some of Stern’s old union brothers, by contrast, aren’t overjoyed. “After hauling in record profits last year, why should corporations get another tax giveaway?” asked Peter Colavito, director of government affairs at SEIU in a prepared statement. And Sal Rosselli, president of the mammoth SEIU United Healthcare Workers West until his ouster in January 2009, thinks Stern’s new position is the logical culmination of a pro-business worldview: “He had a progressively, from my perspective, anti-union ideology when he was president of SEIU, and now he’s unchecked totally. He doesn’t have to be careful anymore.”

But how much has Stern moved rightward? Evidence suggests that his friends and foes each have projected onto him a motive they want to see. The reality is that he’s changed rather little. As a labor leader, Stern, first and foremost, has been focused on institution-building. He sees unions as eventually extinct unless they grow in numbers and power. He relentlessly promoted this grow-or-die philosophy during his tenure as SEIU president, in the process aggressively doubling membership from about 1 million to 2 million through a combination of organizing and acquisitions. It was his dissatisfaction with the approach taken by former SEIU mentor and AFL-CIO President John Sweeney that moved him to lead a walkout with several other unions on the eve of the federation’s 50th anniversary convention in Chicago in July 2005. That rump faction shortly would declare itself the Change to Win federation. At Change to Win’s kickoff convention in St. Louis that September, Stern declared: “We pledge to devote the vast majority of our resources to united the strength in modern, growing, strong, powerful, organizing unions.”

Stern’s advocacy of rank and file growth, in turn, is part of an overarching corporatist vision. This is not new. During his SEIU presidency he repeatedly cut deals with major health care and other service providers, even at the expense of good contracts, if that what was it took to preserve or create union jobs. And he didn’t hesitate to replace local leaders, like Rosselli, who weren’t on board with him. Business and unions, Stern argues, have to be on the same page for both to grow. Unions have to adopt modern business management techniques, and even learn from business leaders themselves, in order to restore institutional viability. In Stern’s view, profitable companies are necessary for growing unions. By expanding the economic pie, unions then can grab off a bigger slice. Government, in his view, is a key investor, the backstop guarantor of putting companies and unions on the growth track. The Obama administration’s takeover of General Motors and Chrysler, plus its successful persuasion of Congress to pass an economic “stimulus” plan that included a large infrastructure component, have been extreme manifestations of this economic philosophy. They are hardly the only ones.

Government, argues Stern, is the catalyst that makes these sorts of partnerships work. Without large injections of public investment, neither corporations nor unions can prosper. By establishing national needs in advance, government can assist the growth of business and organized labor. If experience is any guide, political favoritism would come heavily into play. And unions would be demanding favors. Expanding the unionized labor force, in numbers and proportion, remains Andrew Stern’s central obsession. He’s not about to join “the other side.”

Andrew Stern’s opposition to what amounts to double taxation on U.S.-held foreign profits is a welcome development. Perhaps one day Congress will “get it,” as James Tisch puts it, and enact a tax reduction. But supporters in the business world are getting more than a little carried away when they celebrate the man as a closet free-market enthusiast who finally has burst from his cocoon. At heart, Andy Stern is still Andy Stern.


SEIU’s Stern Leaves Troubled Legacy

SEIU Disavows ACORN, but Long History of Ties Won’t Go Away

SEIU May Have Pressured White House into Withholding Stimulus Funds for California

Members of Large California Health Care Local Sue SEIU, Stern