Senate Kills Anti-Offshoring Bill

by Mike Godfrey, Tax-News.com, Washington

30 September 2010

A bill which proposed a payroll tax holiday to companies hiring American workers to replace those at a foreign-based operation whilst removing tax breaks from those companies moving operations abroad has been voted down by the Senate.

The bill, known as the Creating American Jobs and Ending Offshoring Act, would have given companies a two-year holiday from social security payroll withholding taxes for each employee they hired to replace a worker at a foreign-based facility. In return, the bill would have barred companies from taking tax credits or deductions against company income taxes for the cost of closing a US-based facility to move the operation overseas. In addition, companies that closed a US-based business and expanded a similar foreign business, for the purpose of importing products for sale in the US, would no longer have been allowed to defer US income taxes on those foreign subsidiaries.

Democrats argued that the legislation would have created new jobs and erected barriers to those firms 'shipping jobs overseas'. "The bill we tried to pass today is based on simple common sense: to keep American jobs here in America, we should stop forcing taxpayers... across the nation to pay for giveaways that reward companies for sending American jobs overseas," stated Sen. Harry Reid, Senate Majority Leader and a co-sponsor of the bill, following the September 28 vote.

"But Republicans continued their job-killing agenda by protecting these tax breaks for CEOs who offshore American jobs, and preserving the same failed Republican policies that cost eight million Americans their jobs," Reid remarked.

But Chuck Grassley, the ranking Republican on the Senate Finance Committee, countered that the bill would merely have given foreign firms a competitive advantage over US manufacturers in vital overseas markets.

“The legislation that was defeated in the Senate today would make US companies pay an extra tax, of up to 35%, compared to foreign competitors, and really hit companies like John Deere, where they have big overseas markets,” Grassley said.

The Iowa Republican also suggested that no evidence exists to support the view that deferral rules - the bete noir of the Obama administration - motivate firms to avoid US tax. These rules allow a US corporation to defer paying US tax on the earnings of its foreign subsidiaries until such earnings are sent back to the parent.

"So, this bill is completely contrary to a half-century of bipartisan thinking as to when it is appropriate to deny deferral, and when it is not. To the contrary, there obviously could be many reasons for a foreign subsidiary of a US corporation selling goods into the United States," Grassley noted. "There could be a need to be near to certain overseas markets, or the good in question may not be found in appreciable quantities in the United States. There could be quite a lot of reasons having nothing to do with tax, but the sponsors of this bill don’t seem to understand that."

Grassley said the real issue with taxes on American companies that have foreign subsidiaries is that “corporate tax rates in the United States put US employers and, in turn, our workforce at a competitive disadvantage.”

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