Kerry Hopes To Protect US Jobs With Corporate Tax Reform

by Mike Godfrey, Tax-News.com, Washington

29 March 2004

Democratic presidential candidate John Kerry is proposing changes to the US corporate tax structure that will reward firms for bringing home their profits from overseas subsidiaries.

Under Mr Kerry’s plan, a tax break allowing companies to defer tax payments on income earned abroad for anything up to a decade will be largely eliminated, saving the Treasury around $12 billion annually. This revenue saving would then be used to give US manufacturers a 1.75% cut in corporate tax from 35% to 33.25%.

In addition, Kerry plans to offer US firms a reduced tax rate of 10% on earnings held overseas, an amount the Congressional Research Service estimates at around $600 billion, in a bid to encourage American firms to invest more at home.

The Massachusetts senator is also proposing a new tax credit that will give firms a two-year refund on their new employees' payroll taxes, which he hopes will help to staunch the flow of jobs heading overseas as more firms outsource to jurisdictions such as India and China.

However, this latter proposal has come in for some criticism amongst economists, who contend that the new credit will have a distortionary effect on the US job market, and will encourage firms to turn over staff at a faster rate.

Besides this, analysts also point out that the US labor market cannot hope to compete on a level playing field with the likes of China and India where labor costs are up to thirty times lower than the US, according to World Bank statistics.

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