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Kerry promises to plug tax loophole

Outsourcing of American jobs to Asia has become a hot-button issue in the US presidential election with White House aspirant Senator John Kerry promising the most sweeping reform of international tax law in four decades to halt the trend.

Forty of 50 states across the country have also threatened to use legislative muscle as they consider passing nearly 200 laws to prevent the export of US jobs, officials said.

In addition, powerful governors in eight states have either completely barred offshore sourcing under government contracts or imposed stringent conditions for companies wishing to farm out work to China, India, Southeast Asia and other developing economies.

Kerry is using the outsourcing issue to discredit incumbent George W. Bush, labeling him the president with the worst employment record in the past 72 years, as 1.6 million private sector jobs have been lost during his term.

The Democratic party flagbearer has promised to plug a tax loophole exploited by firms investing offshore and, in return, to give incentives to those companies who maintain and expand their operations and create employment at home.

"I'm going to shut that loophole, and I'm going to give the tax benefit to the companies that stay here in America to help make them more competitive," Kerry vowed during Friday's debate with the Republican Bush ahead of the Nov. 2 elections.

Kerry has promised to create 10 million jobs in four years under his economic program.

No measurable effect

Despite enormous publicity generated by the outsourcing issue, analysts do not believe it would have any measurable effect in battleground states.

"It does resonate with certain people and certain voters but a common fact about trade and elections is that while many people say they care about the issue, it ranks far down the list and it is very difficult to find a presidential or even Senate election decided by the trade issue," said Daniel Griswold of the Cato Institute, a liberal think tank.

The fact remains that over the past decade, the US produced more jobs than it lost and "within the overall churning of this huge economy, outsourcing is a small portion of the overall effect," said conservative Heritage Foundation policy analyst Brett Schaefer.

While the tax changes proposed by Kerry may be the most radical in four decades, they may not necessarily be effective in combating job outsourcing because very few companies outsource to solely enjoy tax breaks, economists say.

Kerry himself concedes outsourcing cannot be eliminated.

"You can't stop all outsourcing," he said. "But what you can do is create a fair playing field," he said.

However, Kerry will have his work cut out turning the tide: It costs top IT firm IBM just US$12 per hour to recruit programmers from China compared to nearly five times that amount in the US.

Higher education levels, advanced communications, and economic and social reforms in the developing world are also making it easier, more efficient, and more affordable to source offshore, says Thomas Donohue, president of the US Chamber of Commerce.

More profitable

He said leading economists, from both Democratic and Republican parties, agreed that sourcing some work overseas allowed companies to strengthen their bottom lines, reduce consumer prices, focus on more profitable operations and create new and better jobs at home.

"Without fail, businesses go to where they can earn the best return on their investment," Donohue said.

Nobody knows for sure how much offshore outsourcing is really going on, but the rough consensus is that 300,000 to 500,000 service jobs have been moved so far and that an average of 250,000 per year could move over the next decade, he said.

Furthermore, benefits derived by the US through insourcing far outpaces those from outsourcing, statistics show.

Foreign companies have invested a total of US$487 billion in the US, directly creating 6.4 million jobs and indirectly creating tens of millions of additional jobs, Donohue said.

"For every dollar that is outsourced by US business to India, the US insources at least US$10 of business from India," according to Palaniappan Chidambaram, India's Finance Minister.

"This dispute about outsourcing is highly exaggerated," Chidambaram says.
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