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

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 7:55pm ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
Apple Inc 111.78 -0.87 -0.77%
General Electric Co 25.62 0.48 1.91%
Intel Corp 36.37 -0.65 -1.76%
Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

Sections

New York Magazine reporter Jessica Pressler, who has been caught up in controversy this past week, will not be moving on to a new job at Bloomberg News. More

Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More

Forums in dark corners of the web sell the kinds of hacks that befell Sony. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

The income of the top 1% jumped significantly in 2012, far outpacing inflation. Not only did this group make a larger share of the country's income, their share of total taxes also jumped from 35% to 38%. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.