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Tax Cut Proposal Kicks U.S. Workers Out Of Jobs

Tax cut pro­po­nents want to encour­age domes­tic employ­ment by sub­si­diz­ing Amer­i­can com­pa­nies who employ for­eign work­ers in over­seas plants.

Cut­ting cor­po­rate income tax on for­eign earn­ings puts com­pa­nies that keep their pro­duc­tion in Amer­ica at a com­pet­i­tive dis­ad­van­tage and encour­ages the con­tin­ued hol­low­ing out of the Amer­i­can economy.

The sub­sidy for mov­ing pro­duc­tion over­seas has been euphemisti­cally called a “repa­tri­a­tion tax hol­i­day” but the only peo­ple who are going to get a hol­i­day are unem­ployed Amer­i­cans whose jobs will move overseas.

The prob­lem with the repa­tri­a­tion tax hol­i­day is that it will mas­sively cut taxes on for­eign cor­po­rate prof­its while not chang­ing the tax rate on domes­tic prof­its. It isn’t hard to fig­ure out what will hap­pen. If the cor­po­rate income tax rate is close to 0% for for­eign prof­its, but remains at 35% for prof­its made domes­ti­cally, every com­pany that can move over­seas will do so. A 35% mar­gin advan­tage by mov­ing pro­duc­tion over­seas will be too much to overcome.

Tax cuts almost always sound good. Con­ser­v­a­tives like them because it gives peo­ple more money to make their own choices, and some lib­er­als like them because it’s a form of gov­ern­ment stim­u­lus. But not all tax cuts are cre­ated equal. Some, like the repa­tri­a­tion tax hol­i­day, actu­ally cre­ate incen­tives for bad eco­nomic behavior.

Tax hol­i­day pro­po­nents argue that Amer­i­can com­pa­nies won’t bring their for­eign prof­its into the U.S. and invest in Amer­ica because U.S. taxes on for­eign prof­its are too expen­sive. It’s unfair, they say, to force Amer­i­can com­pa­nies to pay U.S. cor­po­rate income taxes on for­eign earn­ings because a for­eign income tax was already paid. After all, why would any­one want to pay a tax on the same earn­ings twice?

Tax hol­i­day sup­port­ers say that if taxes on for­eign earn­ings are sig­nif­i­cantly reduced, U.S. com­pa­nies will use their for­eign earn­ings to fund a domes­tic invest­ment renais­sance. New York Sen­a­tor Charles Schumer even thinks that the extra rev­enue could be used to fund an infra­struc­ture bank.

But for some odd rea­son every­one who is advo­cat­ing the tax hol­i­day has for­got­ten that the tax code already con­tains a “for­eign tax credit” which elim­i­nates the dou­ble tax­a­tion of for­eign earnings.

When U.S. com­pa­nies pay taxes over­seas they can claim a tax credit equal to the amount of for­eign taxes paid or assessed. The effect of the tax credit is to reduce U.S. taxes by the amount of for­eign taxes and keep the com­bined for­eign and domes­tic tax bur­den the same as it would be for a domes­tic only tax­payer. If the tax hol­i­day is enacted, the tax bur­den on for­eign earned income by U.S. com­pa­nies will be close to 0%.

The 0% tax rate won’t hap­pen because for­eign gov­ern­ments reduce their income tax rates or taxes col­lected. Taxes paid to for­eign gov­ern­ments will still be paid, just indi­rectly by U.S. tax­pay­ers through the for­eign tax credit.

If tax cut­ters get their way U.S. com­pa­nies that employ U.S. work­ers will be at a com­pet­i­tive dis­ad­van­tage. U.S. employ­ers that hire Amer­i­cans will pay a 35%+ cor­po­rate income tax on their prof­its while U.S. com­pa­nies that hire for­eign work­ers will pay almost a 0% cor­po­rate income tax rate.

It’s just a com­mon sense fact that if tax do-gooders were seri­ous about cre­at­ing U.S. jobs and invest­ment they wouldn’t be talk­ing about sub­si­diz­ing U.S. com­pa­nies to hire for­eign workers.

If tax cut­ters were seri­ous about sup­port­ing Amer­i­can jobs they be talk­ing about tax increases on for­eign prof­its and off­set­ting tax cuts on domes­tic earn­ings. A sim­ple elim­i­na­tion of the for­eign tax credit and a dol­lar for dol­lar domes­tic tax credit would do the trick.

For Amer­i­can work­ers strug­gling to com­pete in the global econ­omy, the tax hol­i­day pro­posal is insult on top of injury. Amer­i­can work­ers are try­ing to keep their jobs but are being asked to pay taxes that are used to sub­si­dize employ­ers replac­ing them with for­eign workers.

Amer­i­can cit­i­zens should be demand­ing that their elected offi­cials fight for Amer­i­can jobs and the Amer­i­can econ­omy. It is uncon­scionable for any mem­bers of Con­gress to advo­cate a tax sub­sidy for U.S. com­pa­nies so that they can hire for­eign work­ers instead of Americans.

Con­gress needs to stop pan­der­ing to spe­cial inter­est groups that are hell bent on raz­ing the Amer­i­can econ­omy and start fight­ing for Amer­i­can workers.

Posted in: economy, Finance, Politics, Public Policy

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