Dems' Anti-Outsourcing Bill Will Kill More Jobs
What Democrats call an “anti-outsourcing” bill is winding its way through the Senate and will probably fail if it comes up for a vote soon. The bill, quite possibly the last major new proposal up for serious Senate consideration before the fall elections, is a lousy, gimmicky idea. In fact, there’s literally nothing to recommend it.
The bill attempts to end “outsourcing” by denying American companies’ write-offs for the costs of closing uncompetitive plants and imposing rather bizarre U.S. income taxes on products made in other countries but sold in the United States. The bill also offers partial payroll tax relief (essentially 6.2 percent of payroll) for companies that “insource” jobs to the United States.
None of these are good ideas. The tax penalties won’t save a single job. It’s unlikely any company has ever closed a U.S. plant simply in order to get a tax write-off. After all, any company closing a plant has to pay enormous amounts for unemployment benefits and has to build an entirely new plant somewhere else. If the lack of a write-off does, somehow, keep a plant open that would otherwise close, it will do so only at the cost of the overall global competitiveness of the company that would otherwise close the plant.
The idea of imposing domestic taxes on products made in other countries is an equally poor idea. Modern multi-national corporations have operations all over the world. If, say, a German subsidiary of a U.S. company makes a product in the United States and then invests the profit in Germany, the Democrats propose to charge a tax on the profit of the U.S. company. This will put U.S.-owned companies at a huge competitive disadvantage when selling in the United States since entirely foreign-owned companies will pay taxes only in their home markets. Companies sending profits to foreign subsidiaries already pay a federal excise tax that’s effectively equivalent to the income tax. The new policy will amount to double taxation; they’ll still pay the FET and pay the U.S. tax as well. For foreign subsidiaries of U.S. companies like German small electric device maker Braun (a subsidiary of Proctor and Gamble) and South Korean car maker GM-Daewoo that have always been non-U.S. companies, this seems particularly unfair. Since many categories of manufacturing have entirely left the United States and, for that matter, every other developed country, the policies are likely to lead to higher prices for U.S. consumers. Rather than encouraging companies to make things in the United States, the proposed tax policy seems likely to encourage companies to sell foreign subsidiaries to foreign companies.
Finally, the new tax benefits for “in-sourcing” seem unlikely to do much of anything. The benefit of bringing jobs “back” to the United States will be temporary relief from a 6.2 percent payroll tax. Since U.S. payroll taxes are already lower than those in most other developed countries, any company seeking lower payroll taxes is likely to already see the current U.S. system as a plus. Since the nation’s corporate income taxes are the second highest amongst large developed economies, cutting these taxes would do a lot more to stimulate domestic investment than cutting already reasonably low payroll taxes. The tax break also seems very inclined to manipulation: since large companies are always hiring significant numbers of workers, smart accountants will probably figure out ways to count any new hire as an “insourced” job.
Quite simply, the new Democratic anti-outsourcing bill has nothing to recommend it. It would raise prices, encourage American companies to sell foreign subsidiaries, and probably destroy jobs. It seems unlikely to pass the Senate. And that’s a good thing.