NCPA - National Center for Policy Analysis


October 21, 2004

Presidential hopeful John Kerry says job losses due to outsourcing can be slowed via employer tax credits for new hires and ending tax breaks for firms working overseas. Investor's Business Daily (IBD), however, says such policies are ineffective and reflect a view that ignores basic economics:

  • Kerry's employer tax credit is only for two years and will likely introduce far more in regulatory costs than tax savings; making the tax code more complicated also deters foreign investment.
  • U.S. firms working abroad are subject to double taxation (both there and at home); ending the deferral of taxes on foreign income reduces global competitiveness.

The hope of ending tax breaks is to have firms end up investing more at home. But IBD says firms would do that anyway if investment opportunities at home were as profitable as those abroad. Ending the deferral simply means companies miss out on opportunities in the global marketplace.

Moreover, the notion that outsourcing is a one-way street is naive, explains IBD. Today, foreign firms operating in the United States account for 6 percent of American jobs, up from 3 percent in 1997. Foreign firms pay U.S. workers 31 percent more on average than domestic businesses.

In fact, while Kerry has repeatedly told Ohio workers that Bush is sending their jobs over seas, that state has been a significant beneficiary of job insourcing:

  • Some 900 foreign firms employ tens of thousands of workers in Ohio, including Honda Motors (14,000), DaimlerChrysler (11,000), and Siemens AG (4,000).
  • Since the North American Free Trade Agreement was signed, Ohio's exports to Mexico have tripled, totaling more than $2 billion last year.

Source: Brian Mitchell, "Kerry Outsource Plan No Solution: Experts," Investor's Business Daily, October 20, 2004; and Editorial, "Discovering Columbus," Investor's Business Daily, October 20, 2004.


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