The GOP Tax plan will accelerate outsourcing.
How will it work? Now, when a US corporation earned foreign income, it has to pay taxes to the US on that income. Sure, sometimes companies engage in skullduggery that allows them to defer paying those taxes. But until they actually repatriate the funds and pay the taxes, the unpaid taxes accumulate on their financial statements. These unpaid US taxes are called a “deferred tax liability,” and they make the company’s financials look bad.
The dirty secret about corporate America is that the financial statements that produce the various fractions that analysts look at is *the only thing corporations care about*. They care about EPS and the Current Ratio and ROI, and so on and so on. They don't want to be good, they want to look good. That’s another diary. So, back to the GOP tax plan, and the “territorial” system (which should be called the “terrorize American workers” system).
So what does the new GOP tax plan do for them? Well, the new “territorial” system will allow companies to pay 0% on foreign earnings. What do they pay now? A maximum of 35%. So what is any company worth its salt doing right at this minute? Instead of wrapping presents, adding rum to the nog, and tiding the yule, you can bet your bottom dollar that corporate attorneys all over the US are holed up in largely-empty offices eating takeout pizza and planning on how they can convert as much of their income from US source income to foreign source income.
Don’t take it from a random Daily Kos diary, take it from these sources:
Here’s our old pal Larry Summers:
Unfortunately, the “territorial” approach being pushed by the House, which would renounce the objective of taxing the global income of U.S. companies, could easily encourage offshore production. Wouldn’t it be much better for the United States to lead an initiative to prevent a race to the bottom in global corporate taxation than for it to try to win a race to the bottom?
Here’s the AFL CIO:
We know the Republican tax plan favors the super-rich and the wealthy corporations over working people. One of the many ways it will hurt working people is by setting up a territorial tax system, under which the active income of U.S. companies earned offshore will no longer be subject to U.S. taxes. This will further entice U.S. multinationals to shift their jobs and profits overseas.
Here are two more experts quoted in the above article, this is Chuck Marr, director of Federal Tax Policy, Center on Budget and Policy Priorities:
“Another, less-noticed provision would permanently set an even lower tax rate for U.S.-based multinationals’ foreign profits by adopting a ‘territorial’ tax system, which would encourage firms to shift profits and investment offshore. As Senate Republican Ron Johnson said recently, ‘With a territorial system, there will be a real incentive to keep manufacturing overseas.’”
Rebecca Kysar, professor of law, Brooklyn Law School. Short and to the point:
“A pressing goal of tax reform is to reduce the incentives for companies to move their operations overseas. This bill does the opposite.”
Here’s an article from The American Prospect:
Meanwhile, the Republican tax plan that Trump has sold as a tremendous deal for the middle class might actually encourage companies to move their domestic operations—and jobs—abroad. One provision in the tax plan would establish a “territorial” system for taxing foreign profits, which would make it much easier for corporations to avoid international taxation and could actually spur companies to move operations abroad.
Kimberly Clausing, an economics professor at Reed College, writes: “Unlike the present system, which taxes companies on their foreign income once it is repatriated to the United States, a territorial tax system exempts foreign income from U.S. taxation. This tilts the playing field even further toward doing business abroad rather than at home, since there will always be countries with lower rates. A territorial system makes explicit, and permanent, the preference for foreign income over domestic income. It also accelerates the profit shifting behind our corporate tax base erosion problem. That is hardly an ‘America first’ policy.
Here’s Newsweek, with an article with the following great headline: TRUMP TAX PLAN GIVES JOBS AWAY TO ROBOTS AND WILL INCREASE UNEMPLOYMENT:
“I worry about that (because) it seems like the Senate GOP is lauding tax breaks on multinationals who are already doing well,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and former economic adviser to Vice President Joe Biden.
Under the territorial plan, the cost of production in the U.S. would increase, Bernstein explained. Instead of encouraging companies to repatriate dollars, the low tax rate would encourage employers to shift production overseas.
Union advocates say the bill pits labor against capital and leads to outsourcing.
“We’ve already seen that this bill is a job killer in terms of outsourcing and these issues of timing around tax deductions for human capital versus physical capital seem likely to make it even more of a job killer,” AFL-CIO policy director Damon Silvers told Newsweek.
The robots are coming for all of out jobs anyway. Here is a great article on that from Mother Jones, if you haven’t read it already:
I don’t know about you, but I can certainly see creeping robot-job-taking everywhere I look now. But that’s another diary. So if this abomination of a tax bill passes, what can we do?
I would suggest that we lay future American job losses right in the lap of the GOP, and as a direct result of this abominable bill. The GOP has found the paper bag, filled it with dog excrement, and put it on everyday Americans’ doorsteps. They’ve set it on fire. We need to ring the doorbell.