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Democrats' tax bill targets outsourced jobs

By Ben Rooney, staff reporter

NEW YORK (CNNMoney.com) -- Senate Democrats this week will push legislation they say will create jobs and discourage companies from shipping jobs overseas.

The bill, introduced last week by Sen. Dick Durbin of Illinois, would give companies a break on payroll taxes for new U.S. jobs that replace positions that had been based overseas. It would also rein in tax incentives for moving jobs outside the United States.

Durbin and other Democrats plan to bring the bill up for a vote Tuesday, but the legislation has already come under attack from Republicans and business groups. (A busy year-end tax agenda for Congress.)

The U.S. Chamber of Commerce called on lawmakers to oppose the bill, saying it would hurt the economy and lead to job cuts. Instead, the group urged lawmakers to extend all of the Bush tax cuts set to expire on Dec. 31 -- an issue Congress is unlikely to resolve until after congressional elections on Nov. 2.

The debate over outsourcing comes as Congress is under pressure to stimulate jobs, with the nation's unemployment rate holding near 10%.

But tax policy analysts say the bill is politically-motivated and doubt that it will have a meaningful impact on hiring. (Risk of double-dip recession: Unlikely but rising.)

"I don't think this package is going to be successful," said Anne Mathias, a tax analyst at Concept Capital's Washington Research Group. "Politically it makes sense, but economically I'm not sure it will work."

Tax holiday: The Creating American Jobs and Ending Offshoring Act would give U.S. employers a two-year break from payroll taxes on wages paid to new U.S. workers performing services in the United States, according to a summary of the legislation.

To be eligible, businesses would have to certify that the U.S. employee is replacing an employee who had been performing similar duties overseas.

The goal is to encourage multinationals to hire American workers for jobs that would have otherwise been outsourced to countries with lower labor costs.

Experts said the amount of money companies could save as a result of the tax holiday may not be enough to offset the benefit hiring workers in cheaper labor markets.

In addition, analysts said many questions remain about how the provision would work if the bill is passed.

"How do you identify the jobs that have come home?" asked Roberton Williams, senior fellow at the Tax Policy Center. "How does the firm prove that a job has moved from overseas to home? How do they prove that the job wouldn't have been created here anyway?"

Closing loopholes: In addition to creating incentives for employers to create U.S. jobs, the bill aims to discourage companies that ship jobs abroad by eliminating certain favorable tax rates.

Under the legislation, businesses would be blocked from taking any deduction, loss or credit for costs related to reducing or ending U.S. operations while expanding similar operations outside of the United States.

The bill would also change current tax laws that allow companies to defer paying U.S. tax on income earned overseas until the profits are brought back to the United States.

Supporters of the bill say deferral gives multinationals an incentive to move production overseas and puts domestic companies at a disadvantage.

But critics, like the Chamber of Commerce, say ending deferral would subject American companies to "double taxation" on the earnings of their foreign subsidies.

"Limiting deferral would hinder the global competitiveness of these American companies, impede U.S. economic growth, and ultimately result in the loss of jobs," Bruce Josten, an executive vice president at the Chamber, wrote in a letter to Senators last week. To top of page

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