Raj Goyle anti-outsourcing plan likely to backfire

A plan advocated by Democratic Party candidate for Congress Raj Goyle to reduce the outsourcing of jobs from the United States is likely to produce the opposite effect, according to the Wall Street Journal.

Goyle is candidate for United States Congress from the fourth district of Kansas. He has criticized his leading opponent, Republican Mike Pompeo, claiming that Pompeo, as president of a manufacturing company, outsourced Kansas jobs to Mexico.

On Goyle’s campaign website, under the heading “Economy: Jobs” we find: “It’s vital to create jobs and keep jobs in Kansas. The very first thing I will do in Congress is work to immediately repeal tax cuts for companies that ship jobs overseas. We must start providing tax breaks and incentives to those who create jobs and manufacturing bases in Kansas.”

In a “Review and Outlook” piece titled The Send Jobs Overseas Act, the Journal explains how the tax breaks Goyle wants to end actually work. This is something that probably very few people understand, so here’s the explanation: “Under current tax law, American companies pay the corporate tax rate in the host country where the subsidiary is located and then pay the difference between the U.S. rate (35%) and the foreign rate when they bring profits back to the U.S. This is called deferral — i.e., the U.S. tax is deferred until the money comes back to these shores.”

So it’s not really a tax break — if by that we mean the corporation never pays taxes on its profits. Instead, payment of the tax is deferred, although the deferral does have value.

The Journal notes that the only major country with a higher corporate income tax rate is Japan. The tax rate on new capital investment in the U.S. is nearly twice the average of that in OECD countries.

This high tax in the U.S. encourages investment overseas. A report this year by the White House tax reform panel concluded: “The growing gap between the U.S. corporate tax rate and the corporate tax rates of most other countries generates incentives for U.S. corporations to shift their income and operations to foreign locations with lower corporate tax rates to avoid U.S. rates.”

And as other countries cut their tax rates, the inventive to leave the U.S. and its high taxes becomes stronger, the report also says.

The piece also cites an earlier tax reform from 1986 where the U.S. eliminated tax deferral on shipping income. This is the same reform Goyle touts as good for the entire U.S. economy. But the Journal notes this reform was “a real disaster for U.S. shipping,” with U.S. shipping capacity falling by 50 percent over a period of years following this reform.

The path advocated by Goyle — President Obama wants this too — would be a disaster for America. “CEO Steve Ballmer has warned that if the President’s plan is enacted, Microsoft would move facilities and jobs out of the U.S.”

The best solution for job creation in the U.S. is to reduce our corporate income tax rate to match or undercut the rate of other developed countries. This would spur investment in America, not only by domestic companies, but by foreign companies, too. Goyle’s plan to raise taxes on American corporations will only harm job creation both here and abroad.

2 Comments

  • Raj, Instead of taxing companies that move jobs overseas, you should be talking about reducing the regulatory burden on businesses so they can stay here. Drill our own oil and allow us to refine it. Allow us to use the clean coal in Utah that Clinton put off limits. Jobs are being moved offshore because Big Govt. makes it too difficult to run them here. You are not watching out for the little guy when you force his company to go bancrupt or move to China.

  • Hello Raj,
    You want jobs go to India. How dare you say that ant outsourcing will be disaster for USA? People need jobs and Indian companies are bringing millions of IT people and Engineers to USA under L1, L2 & H-2B. If we stop outsourcing today millions of jobs can be created for US citizens who losing homes and health.
    During 2008 to 2010 there was rise of 53% millionaire in India while theirs recession all over the world. Now you imagine taking all the engineering jobs the most expensive house worth 1 billion dollar house was made in slumps of India.
    People will federal tax and government will have income.

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