by Beth Bacheldor

House Votes Yes to Discourage Outsourcing

May 28, 2010
Enterprise Applications

The package, which among other things is aimed at creating jobs and closing tax loopholes, passed the House.

“In this legislation, which is job creating, it closes the loophole which has allowed businesses to ship jobs overseas.  Can you believe that we have a tax policy that enables outsourcing?  So if you have one thing to say about this bill to your constituents, you can say that today, you voted to close the loophole to ship U.S. jobs overseas and giving businesses a tax break to do so.  It is not right.  It will be corrected today.”

So said Speaker Speaker Nancy Pelosi to House lawmakers just before they voted on H.R. 4213, the American Jobs and Closing Tax Loopholes Act. For the record, and as many of you already know, the House of Representatives approved the package Friday on a 215-204 vote. The bill will now move to the Senate, which is scheduled to begin work on it June 7, after a Memorial Day recess.

Among many things, the bill renews expired tax breaks like the research tax credit and state sales tax deduction, extends federal unemployment benefits through November of this year, and includes billions for tax-favored bonds for state infrastructure spending.

As for the bill’s specific efforts to prevent American jobs from going overseas, there are provisions in the bill designed to close tax loopholes for companies that ship jobs overseas. When House Ways and Means Committee Chairman Sander Levin (D-Mich.) released the legislative text of the act, he said the bill will promote jobs here in the U.S. and crack down “on loopholes that encourage companies to move overseas.”

In a summary that was distributed to the press with Levin’s and Senate Finance Committee Chairman Max Baucus’ (D-Mont.) press release on the bill, it said that the provisions to close the tax loopholes are designed to curtail abuses on the U.S. foreign tax credit system, which was intended to ensure that U.S.-based multinational companies are not subject to double taxation. The bill estimates it would eliminate $14.451 billion of foreign tax credit loopholes. Levin and Baucus worked with House and Senate leadership and their colleagues to merge two similar bills, one from the Senate and one from the House, into the American Jobs and Closing Tax Loopholes Act.

As you can imagine, not everyone agrees the bill will have positive impact. In a letter to Levin and other House members, IBM said it opposes the bill, referring to the U.S. tax system that has evolved over the years to help American companies compete in global marketplace against foreign competitors who operate under more favorable global tax systems. IBM says, “IBM’s foreign earnings help fund domestic investment and research and result in meaningful U.S. jobs. As such, increasing taxes on IBM’s foreign earnings will have a negative effect on these investment decisions.” IBM suggests any changes to U.S. tax code should be addressed in the broader context of comprehensive tax reform.

IBM, of course, isn’t the only critic. The Technology CEO Council is also not in favor of the bill. In a press statement, Bruce Mehlman, executive director of the council, said, “Without any notice and with immediate effective dates, H.R. 4213 modifies a number of international provisions that have been in the tax code for decades, a process that is fundamentally unfair to taxpayers. Imposing taxes retroactively sets a bad precedent and increases uncertainty for companies at a time when they are struggling with a recovering economy.”

I’ll keep my eye on the bill, and what folks are saying. In the meantime, I’d love to hear your thoughts on H.R. 4213. Is it good or bad? Will it prevent outsourcing or hurt innovation, or both, or neither, or something altogether else?