Sen. Kyl, Countering Accusations on Outsourcing with Facts

By September 27, 2010Economy, Taxation

The Senate will vote Tuesday on cloture on S. 3816, the bill that permanently increases taxes on companies with foreign operations in order to provide temporary tax breaks to other companies. The title is painfully, purposely misleading. Calling S. 3816 the Creating American Jobs and Ending Offshoring Act is like calling a bill to eliminate secret-balloting in union elections the Employee Free Choice Act.

Sen. Jon Kyl (R-AZ) spoke on the Senate floor today, shining light on the misleading claims of the bill’s supporters. His prepared remarks provided a substantive rebuttal to the populist slogans that unfortunately pass for argument these days.

Outsourcing hurts U.S. employment, right? No, Sen. Kyl explained:

A few years ago, PepsiCo embarked on an aggressive expansion program in Eastern Europe, largely by buying up existing bottlers and snack chip producers, upgrading plants and equipment, and improving distribution while increasing their marketing efforts in these countries, achieving large gains in sales as a result.

As a result of this expansion, PepsiCo’s employment abroad increased, but that did not cost any Americans their jobs. Pepsi merely took over existing plants and their workers.

In fact, PepsiCo’s foreign expansion created jobs here in the United States. To support their overseas operations, the company needed to expand their logistics, marketing, and other support operations-all well-paying jobs at their U.S. headquarters. As a result, expanding operations abroad increased employment here in the United States. 

Oh, c’mon, Senator. It’s just greed, greedy corporations. Isn’t it?

Many American companies establish operations abroad, not “to export jobs” for reasons of “greed,” as some of the bill’s supporters charge, but to break into foreign markets, add new customers, or cater to a larger market abroad. The Pepsi example I just discussed illustrates this point.

According to the Department of Commerce, only 10 percent of foreign subsidiary sales are into the United States. So, 90 percent of the subsidiaries’ sales are in foreign markets. This statistic shows that the vast majority of companies are not moving manufacturing overseas only to sell goods back to the United States at a savings, but rather to cater to their customers.

The Senator concluded by making an argument for a more jobs-friendly tax environment generally, one that permits U.S. companies to compete more effectively. The National Association of Manufacturers agrees.

Join the discussion 7 Comments

  • Carter Wood says:

    We’ve lost the manufacturing sector? No, not so.

    •The United States is the world’s largest manufacturing economy, producing 21 percent of global manufactured products. Japan is second at 13 percent and China is third at 12 percent.
    •U.S. manufacturing produces $1.6 trillion of value each year, or 11 percent of U.S. GDP.
    •Manufacturing supports an estimated 18.6 million jobs in the U.S.—about one in six private sector jobs. Nearly 12 million Americans (or 10 percent of the workforce) are employed directly in manufacturing.
    •In 2009, the average U.S. manufacturing worker earned $70,666 annually, including pay and benefits. The average non-manufacturing worker earned $57,993 annually.
    •U.S. manufacturers are the most productive workers in the world—twice as productive as workers in the next 10 leading manufacturing economies.
    •U.S. manufacturers perform half of all R&D in the nation, driving more innovation than any other sector.

  • Merlin96 says:

    Nice try Sen. Kyl. His support for outsourcing is simply factually wrong though. I have a friend, just to use an example, whose job was outsourced to Indian. He was employed as logistical support. Once the outsourced job was fully in place and the Indian employees trained, however, he lost his job. Since then, he has been serially unemployed, recently accepting his third contract job in as many years. I do believe common sense will tell you that this is the fatal flaw in Sen. Kyl’s position. Most, if not the majority, of this logistical support will be phased out once the outsourced jobs are in place. One does not have to be an economist to understand why we have nearly 10% national unemployment – we have already lost the manufacturing sector entirely. Now we are intent on outsourcing the service industry. Meanwhile, every year, more people enter the work force while on the other end, people are living longer and retiring later (either by choice or from necessity). There are fewer jobs to go around and then we are sending those out of country.

  • Stack says:

    First of all, why should Americans give tax breaks to corporations just because they want to operate overseas? That’s the first problem. The breaks never should have occurred. Ending them now is correct.

    Second, here’s the flaw with Carter Wood’s logic:

    “This statistic shows that the vast majority of companies are not moving manufacturing overseas only to sell goods back to the United States at a savings, but rather to cater to their customers.”

    I don’t care why corporations open branches overseas. They shouldn’t get tax breaks for doing it. Whether they sell all their stuff in China or ship half of it back to the U.S. is irrelevant. The point is that when they move operations overseas, AMERICANS LOSE JOBS. So Americans should not be rewarding them with tax breaks for injuring America.

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  • Carter Wood says:

    You start with an accusation that is wrong. Not immediately posting a comment after work hours is not the same thing as deleting a post. On from there …

  • smg71 says:

    Apparently you agree with Senator Kyl as well since you deleted this post the first time.

    It is patently disengenuous for Senator Kyl to use Pepsi, who both produces and sells it’s foreign product overseas with the companies that this bill is intended for.

    Pepsi does not have 90 percent of it’s workforce overseas and does not ship the goods back to the US tax and tariff free because of the two offshoring loopholes that this bill is trying to close. As a matter of fact they would not even be affected by these taxes as they would be be shipping the goods back into the US and would therefore avoid the taxes and tariffs that would be levied by closing these loopholes.

    Apple, as an example, (HP, GE, Dell, IBM, Caterpiller could just as easily be substituted) carries 25,000 production workers in the US to it’s 250,000 workers in China. Unless 90 percent of these companies’ sales come from overseas sales Senator Kyl’s argument makes no sense whatsoever. In situations like this, you are looking at these companies as American Based when they are actually foreign importers and should be taxed as such.

    To be so opposed to helping the unemployed and shouting “get a job” and then on the other hand supporting the very policies that put them into that situation, Senator Kyl is blatently showing who he is really supporting and it is not his constituents, the tax payers of the United States, it’s his corporate sponsers that he is supporting.

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