On S. 3816, Raising Taxes on Businesses with Overseas Operations

By September 28, 2010Economy, Taxation, Trade

The Hill, “Democrats not optimistic ahead of Senate vote on outsourcing bill,” which suggests an attitude of, “We know it’s a bad bill, we know it won’t pass, but what the hey…”

Notably, revenues measures  must originate in the House of Representatives — Article I, Section VII, U.S. Constitution — and this bill did not.

The cloture vote is scheduled for 11:30 a.m.

Sen. Charles Grassley (R-IA), ranking member of the Senate Finance Committee, gave an excellent overview of the issue in a Senate floor speech Monday, going back to the origins of tax deferral and how the U.S. tax system treats overseas earnings. Excerpt:

Allow me to explain why the net effect of the bill would be to decrease U.S. employment.

First of all, if a U.S. parent company has a foreign subsidiary, then this creates managerial headquarters jobs in the U.S. that would not otherwise be there.  The Reid-Durbin-Dorgan bill might encourage American companies to simply sell off their foreign subsidiaries.  This would in turn mean laying off employees at management positions at the American headquarters.

A bigger way this bill would hurt employment in the U.S. would be to discourage assembly jobs in the U.S.   A U.S. parent company could have foreign subsidiaries engaged in manufacturing parts that are shipped back to the U.S. parent.  The U.S. parent in turn might assemble those parts here in the U.S. into a finished product.  So, yes, just maybe this bill would encourage the company to repatriate the parts production, but it’s just as easy to imagine that this bill would encourage the company to expatriate the assembly jobs.  So, this bill is an unacceptable gamble with American jobs.

In the words of the late Senator Moynihan in speaking in opposition to this proposal 14 years ago:  “Investment abroad that is not tax driven is good for the United States.”

More recently, Senator Baucus’ concerns that this would put the United States at a competitive disadvantage are exactly right.  Last Thursday, Senator Baucus was quoted in Congress Daily saying, “I’m looking at it.  I think it puts the United States at a competitive disadvantage. That’s why I’m concerned.”

Join the discussion 3 Comments

  • Ray Medeiros says:

    American workers should compete with foreign workers based on productivity,efficiency and quality NOT wages and benefits.

  • Carter Wood says:

    They voted in support of America’s employers, who employ workers.

  • Clarence says:

    TODAY, 4 DEMOCRATS AND JOE LIEBERMAN VOTED AGAINST CREATING AMERICAN JOBS AND

    ENDING OFFSHORING (S.3816).

    THE 4 DEMOCRATS WHO VOTED WITH REPUBLICANS AGAINST AMERICA’S WORKERS ARE:

    1. Ben Nelson (D-Neb.)
    2. Jon Tester (D-Mont.)
    3. Mark Warner (D-Va.)
    4. Max Baucus (D-Mont.).

Leave a Reply