How does a tax code encourage outsourcing American jobs? Very simple......a tax break for companies that ship American jobs overseas. The problem lies in profits that are earned in the United States are subject to a 35% corporate tax. Profits earned overseas by multinational corporations can defer paying U.S. taxes until they return them to the U.S. and these transfers usually don't happen for several years. Tax codes outside the U.S. are extremely low, particularly in Ireland and this is why we see multinational corporations. This is what encourages companies, who want to expand because they are growing, to move to a "tax haven" and the creation of say, 100 jobs, will be filled by those who are not American. The U.S. has one of the highest corportate tax rates in the world. But despite the high tax rate, the U.S. takes in less annual revenue from corporate taxes, measured as a percentage of economic output, than almost all other major economies. And part of this explanation for that shortfall is the allowance for corporations to postpone taxes on foreign income. Economist Jason Furman put it this way, "The problem is the company gets to deduct the cost of doing business right away, but they don't have to pay tax on the profits until they bring them back".
This deferral clause has been in the tax code for over a half century and any attempts to reform it have been thwarted. Even President Kennedy asked Congress to rewrite tax provisions that consistently favor United States private investment abroad compared with investment in our own country. Corporate foreign earnings are growing in such large volumes that to match that with low corporate tax and low wages, you will have the perfect receipe for outsourcing.
The Democrates say that the United States, in an effort to embrace globalization, has overlooked the costs to working Americans. Frankly, no one cares about the average little American who is just trying to make it in this world. Just look at the subprime mess and all those greedy bankers. Clearly the rich keep getting richer and the poor keep getting poorer. Why is it that we see this country continually sold out to globalization? It's because our "elected officials" need to go back and study American History 101 and embrace what created the birth of this nation to begin with. Too much on the agenda in the minds of our elected officials is globalization and in their efforts to embrace it, they are flushing this country down the toilet.