Are there tax breaks for U.S. companies that move jobs overseas

0

29 Jan, 2013

Claim

In the first debate of the 2012 Presidential election at Denver College, Barack Obama had an exchange regarding shipping of U.S. jobs overseas, also known as “outsourcing”. The Obama campaign has also criticized some of Mitt Romney’s investments for outsourcing U.S. jobs.

OBAMA: When it comes to corporate taxes, Governor Romney has said he wants to, in a revenue neutral way, close loopholes, deductions — he hasn’t identified which ones they are — but that thereby bring down the corporate rate. Well, I want to do the same thing, but I’ve actually identified how we can do that. And part of the way to do it is to not give tax breaks to companies that are shipping jobs overseas. Right now, you can actually take a deduction for moving a plant overseas. I think most Americans would say that doesn’t make sense. And all that raises revenue.

ROMNEY: The second topic, which is you said you get a deduction for taking a plant overseas. Look, I’ve been in business for 25 years. I have no idea what you’re talking about. I maybe need to get a new accountant. But — but the idea that you get a break for shipping jobs overseas is simply not the case.

Background

Barack Obama has consistently claimed that U.S. companies receive tax benefits for moving U.S. jobs overseas.

In October, 2011 President Obama wanted action on a stalled Senate Bill that would end tax credits and tax deferrals for companies with overseas operations. Obama blamed Republicans for blocking bills that would take away tax breaks for U.S. corporations that move jobs to subsidiaries in other countries. Republicans in Congress, he said, “have consistently fought to keep these corporate loopholes open.” In the last four years, he said that “Republicans in the House voted 11 times to continue rewarding corporations that create jobs and profits overseas — a policy that costs taxpayers billions of dollars every year” in revenue lost to the U.S. Treasury.

According to The Huffington Post however, some Democrats feared that ending the tax help could put the United States at a competitive disadvantage. The president acknowledged that “a lot of companies that do business internationally make an important contribution to our economy.” But he said “there’s no reason why our tax code should actively reward them for creating jobs overseas.”

Discussion

What actual tax credits are available?

A tax credit is given for ordinary and necessary business expenses incurred in outsourcing.

The Bring Jobs Home Act

The Bring Jobs Home Act would have denied the deduction for ordinary and necessary business expenses to the extent that such expenses were incurred for outsourcing. That is, to the extent an employer incurred costs in relocating a business unit from the United States overseas the employer would be disallowed a deduction for any of the business expenses associated with such outsourcing.

The Bring Jobs Home Act would also create a new tax credit for insourcing. That is, if a company relocated a business unit from outside the United States to inside the United States, the business would be allowed a tax credit equal to 20 percent of the costs associated with such insourcing.

The nonpartisan Joint Committee on Taxation estimated that ending the deduction for moving operations overseas would raise $14 million a year, a tiny amount compared to the deficit. The size of the saving was criticized by Utah Senator Orin Hatch as a “joke”. Speaking on the House floor, Hatch said it was “misleading” for Democrats to say there is a tax break for outsourcing. Holding up a large book, Hatch said the Democrats were trying to invent controversy.

Republicans had denounced the Act as political theater intended to impact Mitt Romney’s Presidential hopes, by linking the outsourcing tax issue to Romney’s alleged outsourcing of jobs overseas while he worked at Bain Capital.

The Act failed 56-42 in the Senate, which at that time was Democrat controlled.

Conclusion

1. The tax benefit is not specific to jobs. There is no direct incentive for a company to get a tax break specifically by outsourcing jobs.

2. The amounts are tiny with respect to real tax savings. Nonetheless it seems cynical to help companies financially for what seems to directly hurt American workers.

Result

MOSTLY FALSE

Related Fact Checks

Politifact: TRUE

Politifact: The federal tax code has “loopholes that are giving incentives for companies that are shipping jobs overseas”

Politifact rated the claim TRUE:

1. Even though Politifact says “In the narrowest sense possible, Romney’s rebuttal is accurate. ”’There is no clause in the tax code that rewards a company when it relocates production beyond U.S. borders.”'”

2. Even though the deduction for moving a plant is the same whether it is overseas or not.

3. Tries to change the subject by conflating the issue with whether companies can keep profits offshore

4. No mention of Bring Jobs Home Act, or of its failure in Congress.

Furthermore, in its fact check Politifact cites Richard Harvey:

Richard Harvey, a former partner at the accounting firm Pricewaterhouse Coopers and now at Villanova School of Law, went even further. “A company would be arguably negligent if they did not claim the deductions,” Harvey said. “In addition, the current tax law would allow a tax deduction for the costs of shutting down a U.S. operation.”

However, Politifact neglects to mention that Richard Harvey is the self-described “architect of FACTA”, the Foreign Account Tax Compliance Act, which was signed into law by President Obama on March 18, 2010.

Surely Mr Harvey’s link to the Obama administration should have been worth a mention? Not only did Politifact make a bogus factual case about Romney’s rebuttal, Politifact also obscured the affiliation of an Obama tax adviser to create the appearance of an impartial criticism of Romney.

Other Fact Checks

The Washington Post – Glen Kessler: A Rounding Error

Tax Policy Blog – Politifact Perpetuates Commonly Held Misconceptions about International Taxation

Huffington Post – Obama Wants to End Tax Breaks for Companies that Move Jobs Overseas []

If you like this post, please scroll down to share it. Click here for hundreds of news and celebrity newslines

Created by:

Change email alert

Frequency


Create email alert

Frequency

Login