Showdown in Senate continues over taxes

 

By Karoun Demirjian

 

Las Vegas Sun

 

Sept. 27, 2010

 

http://www.lasvegassun.com/news/2010/sep/27/showdown-senate-continues-over-taxes/

 

 

In the Senate, the big showdown on taxes – how far the Bush administration's cuts will be extended – is all but guaranteed to wait until after the election.

 

But Democrats are taking one final stab at a more limited tax measure this week that they say would help put the country back to work.

 

Democrats are pushing ahead with a bill aimed at reversing the trend of outsourcing jobs to foreign countries by eliminating tax breaks for companies that move operations overseas and offering incentives for those who move jobs from foreign countries back to the U.S.

 

The measure would eliminate a tax break that exists for companies closing operations in the U.S. that then start or expand similar operations in a foreign country.

 

The legislation also offers a two-year payroll tax holiday to employers that move jobs currently located in foreign countries back to the United States for any American employees hired in the next three years, and ends the practice of deferring some corporate income tax payments until profits are brought back to the U.S. from abroad.

 

Democrats say the steps taken in the bill are necessary measures to bring jobs back to the U.S. and help bring down unemployment.

 

“Right now our tax code actually rewards corporations for offshoring jobs … That’s a slap in the face to hardworking Americans,” said Senate Majority Leader Harry Reid. “It’s no way to get our economy back on its feet. And it’s certainly no way to get Americans back to work.”

 

Reid said the bill is a companion measure to the small business jobs bill, which President Obama signed into law Monday. That measure established a $30 billion fund for local and regional banks, specifically for the purpose of lending to small businesses, along with about $12 billion in new tax breaks for small businesses as a way to spur job creation.

 

But Republicans say the so-called off-shoring legislation wouldn’t bring jobs to the U.S. They say it would make U.S. companies less competitive in the global marketplace.

 

U.S. businesses already are at a disadvantage compared to their foreign counterparts, Republicans say – and the measures contained in this bill would only make it harder for U.S. exports to compete, critics of the bill say.

 

In most countries, companies that produce goods overseas are only subject to overseas corporate taxes, which on the whole are lower elsewhere in the world than the United States. The average corporate tax rate of developed nations in the Organization for Economic Cooperation and Development, or OECD, is about 26.5, while the U.S.’s is 39.1 percent – though most corporations don’t pay nearly that much because of the myriad deductions available to businesses in the U.S. tax code.

 

For the most part, U.S. corporations don’t feel any benefit from those differences. American companies operating overseas are still required to pay the difference between the local tax rate and the U.S. tax rate to the U.S. government – which means the changes to tax policies being considered under the bill could, all else being equal, incentivize keeping operations in the U.S.

 

But the bill doesn’t address another, potentially more critical economic problem – the issue of foreign competition.

 

U.S. manufacturing has taken a serious hit not only from the global recession, but because the cost of operations – especially labor – in countries like China is so much cheaper.

 

There are other factors as well, that have contributed to the challenge U.S.-made goods face in global competition.

 

On a parallel track, the House is expected to consider legislation to let U.S. businesses seek to impose tariffs on Chinese goods, because of China’s policy of holding its currency, the yuan, artificially low. The practice makes China’s goods more globally competitive – but also seemingly runs afoul of World Trade Organization rules, lawmakers of both parties say.

 

But the Senate won’t address those issues this week – and in fact, may not even get to the questions of off-shoring U.S. jobs raised by the present bill.

 

Republicans have banded together in the pre-election season to stymie Democrats’ efforts to bring several pieces of legislation to the floor in the few weeks since Congress began its September session, already keeping the annual defense authorization bill off the floor by voting against cloture with their full caucus.

 

A requisite vote to overcome a filibuster is scheduled for 11:30 a.m. Tuesday – but it doesn’t seem likely that Democrats will win over Republicans by that time.

 

Two Republicans joined Democrats to support the small business jobs bill that Reid has said is a partner to this bill, but at least one – outgoing Ohioan George Voinovich – has already criticized the present measure as “just more political messaging.”