Main Street

Ending the Outsourcing Loophole

We’ve talked a lot about how the bill the House came back into session to pass yesterday afternoon saves hundreds of thousands of jobs and prevents cuts in important public services.

Not everything about how it was paid for was good – there was a lot of bowing to deficit peacockery involved. But there’s one thing I do want to highlight about how it was paid for:

Closing Loopholes That Encourage Corporations to Ship Jobs Overseas (Offset of $9.8 Billion)

• Eliminates tax provisions that encourage companies to ship jobs overseas, beginning in 2011.
• The foreign tax credit is designed to prevent double taxation (i.e., full taxation by both a foreign country and by the United States) of income earned abroad. However, companies have devised schemes essentially shifting the burden of their foreign income tax onto the U.S. Federal government. These transactions enable companies to operate offshore with essentially little or no tax liability to either the U.S. or the foreign government. 
• This abuse of the foreign tax credit encourages companies to move jobs offshore to avoid U.S. taxation.
• Foreign tax credit abuse is among the IRS’s top compliance concerns for large corporate taxpayers. 
• In 2004, U.S. multinational corporations paid an effective U.S. tax rate of just 2% on their $700 billion of foreign active earnings. 
• Includes Obama Administration provisions to crack down on corporations that split foreign tax credits from the income subject to foreign tax, allowing them to take advantage of the foreign tax credit to reduce their U.S. taxes even though the foreign income remains overseas.
• Also eliminates unintended tax incentives for companies to move U.S. assets overseas, ensuring that foreign tax credits are not provided for income that is not subject to U.S. tax.
• Limits the use of aggressive tax planning techniques that take advantage of anti-abuse rules in the tax code to avoid U.S. tax and generate additional foreign tax credits.
• Republicans have fought to keep, and even expand, these kinds of loopholes for years.

Naturally, Republicans spent a lot of time talking about how this bill would raise taxes.

To which I say: Yes. Yes, it does raise taxes. ON CORPORATIONS TRYING TO SHIP JOBS OVERSEAS.

I don’t know about you, but I’m fine with that.

Tags: FMAP, Jobs, outsourcing