U.S. Tax Code Provisions Encourage Offshore Jobs

The Wall Street Journal ^ | 03/12/2004 | STEVE LIESMAN

[neutrino]

As if U.S. workers didn't have enough going against them. Turns out there really are provisions in the tax code that seem to encourage sending jobs offshore.

I have to admit not believing the claim when I first heard Democratic presidential candidate John Kerry shout about it. So I thought either Mr. Kerry has trumped this thing up -- in which case there's a good story -- or there's one very wacky part to the tax code -- in which case, there's a better story.

[neutrino]

Notice that the tax code encourages taking away American jobs. Can we at least agree to end this insanity?

Note that the article is not in complete support of my preferred position - but it's a good read nonetheless.

[EagleMamaMT]

Read later.

[sailor4321]

Don't these provisions for unrepatriated earnings long predate the Bush administration?

[ReleaseTheHounds]

Yep, it's a good read... notice Liesman doesn't provide a solution (and he's a Kerry sympathizer, so this entire take is based on boosting Kerry's luck in "being right" on this very complex law of unintended consequences).

As Larry Kudlow has recommended (also on CNBC which is where Liesman usually hangs out), why not eliminate the corporate tax altogether and impose a sales tax? Now I haven't thought through (or heard) Larry's explanation, so I can't even imagine the unintended consequences of this, but don't hold your breath waiting for Kerry to offer anything constructive on this. He's just for exploiting the connundrum (sp?) of this jobless recovery.

[StriperSniper]

Lowtaxistan

:)

[TXBSAFH]

Once again the American worker takes a total pants downer from Uncle Sam.

[Atlas Sneezed]

How about we just eliminate the corporate income tax? Think of the increased tax revenues as foreign companies outsource jobs TO the US to enjoy low corporate taxes. (Just kidding - almost no nations tax corporate profits.)

[neutrino]

Don't these provisions for unrepatriated earnings long predate the Bush administration?

Sure. They date from the early 1900's....

[Attention Surplus Disorder]

Yes, they do predate Bush, by decades. Those provisions are long-standing. There is a bill currently being either bandied about or under construction which would permit US corporations a one-time tax amnesty repatriating those funds. During the last runup in thse stock market that possibility (amnesty) was touted as a potential +DJ 500-800 pointer.

[Beck_isright]

"Money will find the lowest tax rate, so if there are incentives to go offshore we must end them, and if ending those incentives means lowering the U.S. corporate tax rate, we must also find a way to pay for that."

I love the liberal analysis at the end. Why is it every tax cut must "find a way to pay for it" instead of just cutting the damned taxes and regulations so the outsourcing nonsense will end and the dollars cycle back into the domestic economy. The author proves the point many of us have been making that not only is there any desire to solve the problem but that it will worsen.

[Hop A Long Cassidy]

Dropping or eliminating federal taxes on corporations would solve this problem. (Maybe cut some federal spending while they're at it.) On the other hand, closing the loopholes would drive U.S. corporations offshore. I recommend the former, but voters will probably do the latter. So, place your bets accordingly.

There has been a third solution: over the last 10 years the U.S. government has been trying to jawbone other countries to NOT offer lower taxes than the U.S. Likewise, Europe wants us to raise taxes.

Thus, another reason for increased spending for the military is to keep our restless taxpayers home on the farm and force the other farms to offer similar "benefits." You'd think the liberals would thus be for increased military spending for this very issue alone.

I believe countries are in a race to the bottom on taxes, and this will unfortunately clash with our baby boomers's desires for the existence of retirement funds and that medical funds actually to be there during our retirement years. "Remember, listen to what I say (trust me), not what I do (spend, spend, spend)."

The answer to more federal spending and socialism is not higher taxes; it's less taxes, less government, more individual choice and economic freedom. Don't follow what Europeans have done to themselves (high unemployment by government edict).

If taxes were higher for corporations, they would have to raise prices or layoff workers to get their required returns. Corporations do not benefit from lower taxes; the workers or stockholders benefit. That's INDIVIDUALS. Maybe we could tax foreign stockholders. If we did this correctly we could tax them so well they wouldn't invest here. Oooops. Actions have consequences.

Please note that Kerry is a dead ringer for exchange controls. As Bush has some kind of hidden desire to lose (showing his ignorance of election math with this illegal alien issue), be prepared for Kerry's anti-capitalist moves. Soros, the currency king, is whispering in his ear.

Hoppy

[chuckcam]

A US ex patriot working in a foreign country is responsible for paying the local taxes, thus the "foreign tax credit". It doesn't make sense to pay taxes where you are working, and then turn around and pay the US, especially since you are "out of country". There are limits, etc., so US expatriots DO NOT get a free ride.

[The Duke]

This article sums up beautifully exactly why I stopped being a corporate "cubicle dweller" and went international! The value of US citizenship drops lower every day with every illegal worker we allow over the borders.

While I hate to see the nation in which I grew up commit suicide, there is a certain sense of relief that comes from the feeling that I have a decent chance of not going down with the ship.

Besides, it's not really the nation in which I grew up anyhow - not since the inmates were allowed to take over the asylum.

[neutrino]

Too true. At least we have the memories...

[ninenot]

ANOTHER argument to ditch the Code and go with consumption tax.

And ANOTHER argument validated: that the US policy is contrary to the interests of US workers.

Join OPIC, ExIm, etc.

[ninenot]

Yes, they do predate Bush, by decades.

Just a wild guess: was it Carnegie or Rockefeller who inserted this provision?

[ninenot]

Of course, it's possible that GWB's plan is to get behind the consumption tax after re-election.

This would fall in line with his HSA/HRA tax provisions and the RUMORED revision of SocSec to a partly-'contribution' basis.

IOW, consumers would be more responsible for their own retirement/healthcare needs, BUT the Tax Code would facilitate this.

Same would hold true under Consumption Tax--insofar as what you don't SPEND is not TAXED--thus, savings are easier to build. I would imagine that GWB admin would also put a 'sweetener' into retirement/health savings programs in addition.

[ninenot]

The tread-header is VERY important.

[ex-snook]

ping back.

Now I wonder where this leaves those spouting 'what can the government do about jobs?" Spin us around again.

[LibertyAndJusticeForAll]

Don't go looking in the tax code for a chapter titled "Tax Break for Hiring Foreign Workers." It doesn't exist. The way it works is more complicated. One of the most important is through the ability to defer and often never pay taxes on foreign-earned profits. The result: foreign profits of U.S. companies end up taxed at a lower rate than their U.S. income, creating an incentive to invest overseas in factories. The jobs are where the factories are.

OPIC and other types of foreign aid WE already knew about. THIS tax incentive, THE GOP and CEOs have ALWAYS known about, but declined to share that information with US.

Now WE know TOO.