Offshoring a Scapegoat in Recent Legislation

Ann All

Perhaps not surprisingly in this still-depressed economy, offshoring is cast as a convenient scapegoat in a couple pieces of recent legislation.


As Beth Bacheldor writes on CIO.com, the House of Representatives last week passed the American Jobs and Closing Tax Loopholes Act by a vote of 215-204, sending it on to the Senate, which will consider it next week. The 433-page bill is a big mishmash of spending proposals that will renew a number of expired tax breaks, extend federal unemployment benefits and eliminate loopholes that some politicians say encourage American companies to move overseas.


I wrote about some of these so-called tax loopholes last spring, including transfer pricing, in which multinational companies reduce their U.S. taxes and keep profits offshore in low-tax jurisdictions through their calculations of the prices associated with transferring goods and services between their divisions, and deferral, which allows U.S. companies to delay paying taxes on overseas earnings until those profits are returned to the United States.


The anti-offshore sentiment came through clearly in the remarks of Speaker Nancy Pelosi, D-Calif., to lawmakers just before they voted on the bill. She said:

... So if you have one thing to say about this bill to your constituents, you can say that today, you voted to close the loophole to ship U.S. jobs overseas and giving businesses a tax break to do so. It is not right. It will be corrected today.

Multinational companies like IBM and organizations like the Technology CEO Council have issued statements opposing the bill. In reality, of course, it will likely take more than elimination of tax breaks to convince companies to move overseas operations back to the United States. Perhaps a better approach, suggested by Caterpillar Chairman and CEO Jim Owens in this interview with Knowledge@W.P. Carey, would be introducing a territorial tax system that taxes multinational companies on the profit they earn here.


Now Sen. Charles Schumer, D-N.Y., has introduced legislation that would impose a 25-cent excise tax on companies that transfer calls with U.S. area codes to foreign call centers. It would also require companies to tell customers to which country their calls are being transferred, and companies would have to report quarterly their total customer service calls received and the number relayed overseas. Said Schumer:

If we want to put a stop to the outsourcing of American jobs, then we need to provide incentives for American companies to keep American jobs here.

I took an excellent course in college in which we discussed the Smoot-Hawley Tariff Act's role in turning the stock market crash of 1929 into the Great Depression. President Herbert Hoover signed Smoot-Hawley into law in 1930. It imposed tariffs on imported goods and services in an effort to protect U.S. jobs and goods against foreign competition. Instead, America's trade partners retaliated with tariffs of their own, which led to a lengthy slump in the world economy. I know I'm not the first person to trot out this bit of history, but I think it's especially relevant today considering the growing amount of profit U.S. companies earn in emerging markets, a trend that isn't likely to reverse for years.

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Add Comment      Leave a comment on this blog post
Jun 4, 2010 3:25 PM Virgil Virgil  says:

Lets look at another piece of American History


Now lets look at what is happening right now


And still our representatives are clueless and our corporate executives who think they are in charge are actually having their strings pulled by the Wall Street Vultures that demand more and more profit, no matter the cost such as Mr. Ruffle in the second article



who is thinking about changing the name of his site to KeepTheWorldWorking.com

Jun 6, 2010 5:19 PM Ami0 Ami0  says:

It is amazing that in these times (June 2010) factors such as the impact on Domestic Economic Health does not have a category or mention in these discussions.

Previous Administrations were oblivious to the need, and their responsibility, to American workers (and communities), and to American Businesses as being part of the equation in this discussion.

Instead of crafting Legislation designed to assist in American growth; they did nothing to address the needs for additional skilled technology workers amongst other things.  And thus we live with the results of the predictable decline in that industry.

The same managerial thinking and styles that helped to 'bury' IT in all sectors prior to the mid 2000's (since pretty much day one); were the decision makers when Offshoring entered the discussion;

Americans suffered, competitiveness and participation in the  many areas where America had previously excelled; has been practically eliminated entirely,  unemployment continued to skyrocket.

Point is. There is more to such a discussion of Offshoring than "XYZ's" bottom line. Much much more is at stake in this and more to consider in terms of the impact on Business. And especially the impact on economic growth.

I do not care (underline do not care) what any Legislation ends up looking like; so long as in the end, ALL of the incentives to move business Offshore that taxpayers foot the bill for; are eliminated. Period.

We (Americans)  have been paying for our own demise in this. And it needs to stop.

Senator Lieberman's office produced a White Paper entitled, The. 'Offshoring White Paper',  in 2004.

The document  provided a  detailed description (complete with charts and graphs)  for the continued decline of Technology and other Industries in America as a result of 'Offshoring'.

The Administration at that time,  did nothing to address the issue in any meaningful way. The result was a continued 'outlow' of income for America and the virtual elimination of any investment in Americas industries.  Predictable, as described the Lieberman's Offices 'Offshoring White Paper.

Thanks for the time.

Jun 10, 2010 10:10 AM DJ Ryte DJ Ryte  says:

Ann All's arguments are with merit, if not predictable. However, this issue requires more than a single dimensional view. Government should not be in the influence and policy business per-se but it is naive to think this administration and the nanny-state advocates would ever change.

So, what is another view of the issue?  Perhaps, making our country more regulatory friendly and competitive to do business versus other places in the world. Minimizing labor unions influence over salaries, regulations and controls would be a start. We need to quit thinking that corporations are the enemy of the little people and instead partner with them to achieve profit, market and quality objectives.


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