US 'Insourcing' Bill To Use Payroll Tax Breaks

by Mike Godfrey, Tax-News.com, Washington

27 September 2010

A bill, which will possibly be introduced in the United States Senate in the coming days, would give a payroll tax holiday to companies hiring American workers to replace those at a foreign-based operation, and remove tax breaks from those companies moving operations abroad.

The so-called “Creating American Jobs and Ending Offshoring Act”, the details of which are yet to be published, would give companies a two-year holiday from social security payroll withholding taxes for each employee they hire to replace a worker at a foreign-based facility. The tax holiday would be available over a three year period, starting on September 22, 2010.

While companies could still take deductions for severance and job placement services for employees who lose their jobs as a result of a US plant closing, the bill would bar 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, under the legislation, companies that close a US-based business and expand a similar foreign business, for the purpose of importing products for sale in the US, would no longer be allowed to defer US income taxes on those foreign subsidiaries. US companies that locate facilities abroad in order to sell their products overseas are unaffected by this proposal.

With this “jobs” bill, its Democrat sponsors, who include the US Senate Majority leader Harry Reid, could be playing to the electorate with the mid-term elections due in November. President Obama has previously pointed to the movement of jobs abroad as a significant issue. However, it is said that it would be unlikely to have as great effect on unemployment in the country as, for example, the wider payroll tax holiday that has been promoted in some quarters.

Reid has the option to set up a procedural vote in the Senate in the next few days, if it is decided to go ahead with proposing the bill.

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