Fact Check: Do companies get a tax break when they move jobs overseas?
Nov 09, 2012 (The Florida Times-Union - McClatchy-Tribune Information Services via COMTEX) --
Times-Union readers want to know:
I received an email about companies that move jobs overseas getting a tax break. Can that be true
This email started circulating in earnest after the first debate between President Barack Obama and Mitt Romney.
Companies that outsource, Obama said, "can actually take a deduction for moving a plant overseas."
Mitt Romney countered that "the idea that you get a break for shipping jobs overseas is simply not the case."
FactCheck.org, a nonpartisan fact-finding project of the Annenberg Public Policy Center at the University of Pennsylvania, found both men to be correct.
To Romney's point, the U.S. Tax Code doesn't say specifically that companies can get tax breaks for moving jobs overseas.
But it does allow companies to deduct business expenses, according to FactCheck.org, which spoke with various tax experts. And those expenses can include the costs of moving a job to another state or even to another country, those experts agree. So Obama's point is correct as well. He and other Democrats have been trying to eliminate these tax deductions.
"Firms can generally deduct business expenses," Kimberly Clausing, the Thormund A. Miller and Walter Mintz Professor of Economics at Reed College, told FactCheck.org. "Thus, of course, if firms incurred expenses in moving abroad, they would be able to deduct those expenses."
And this from William McBride, chief economist for the pro-business Tax Foundation: "There are no special tax provisions that provide incentives to move overseas, but, of course, in general, the IRS allows companies to deduct business expenses, one of which is moving expenses, whether within the U.S. or abroad."
The tax code stipulates that U.S. companies operating overseas must pay that country's taxes as well as U.S. tax. But a foreign subsidiary remains untaxed by the IRS until that money is brought back to the parent company in the U.S., according to the tax code.
PolitiFact.com gives this deliberately oversimplified example:
"If a company earns $1 million in Ireland, which has a 12.5 percent corporate tax rate, it pays $125,000 to Ireland. Then, because the U.S. corporate tax rate is 35 percent, the company would owe an additional $225,000 to the United States. But the company only pays that $225,000 when it brings the profits back to the United States. If the profits remain overseas, the company gets to defer taxation indefinitely."
In addition, companies don't have to pay foreign taxes on goods they ship back to the U.S.
It's Clausing's contention that this part of tax law could motivate companies to move business abroad.
"This can provide a huge incentive for locating jobs and income abroad, since many tax haven countries have tax rates that are very low, even approaching zero, and thus the money can grow abroad 'tax free' until it is repatriated," she told FactCheck.org.
Thea Lee, deputy chief of staff of the AFL-CIO, which opposes offshoring of jobs, said the tax break is definitely an incentive to move jobs:
"If you close down your factory in Providence, pack everything up and have to train the workers and ship the machinery overseas, all the costs associated with that are tax deductions," she told PolitiFact.com, a Pulitzer Prize-winning fact-finding project of the Tampa Bay Times.
Companies move jobs overseas for a number of reasons: besides the tax ramifications, they can hire workers at a lower wage and they don't have to pay for employee benefits -- two pretty big incentives.
So it's difficult to determine how much the tax breaks contribute to a company's decision to outsource a workforce.
But the bottom line is that there's no question that tax breaks exist -- and they certainly can contribute to a company's bottom line.
Carole Fader: (904) 359-4635
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