Obama Continues Fight Against Outsourcing

President Obama is stepping up its campaign against outsourcing in its election year

and he has proposed to establish a new minimum tax on foreign earnings. This is designed to discourage US firms from shipping jobs to other countries.

On the other hand, there would be a new incentives system to be introduced to US companies that bring their operations back to the United States. These form part of a large plan to court voters for the coming elections at a time when many Americans remain unemployed or underemployed.

The Department of Treasury said that the current tax system does not encourage job creation and investment in the United States and instead creates many opportunities that encourage outsourcing and other company movements to overseas companies.

The incentive to entice operations to return operations back into the United States amounts to a twenty percent (20%) tax credit for expenses incurred. This, according to the Obama administration, is just an update to the current tax system that is outdated, unequal and inefficient.

In a statement, President Obama said "It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America's small businesses to spend countless hours and dollars filing their taxes."

This needs to change, according to the President. The tax system should not provide benefits for those that locate their production overseas or engage in accounting schemes to shift their profits to other countries, thus eroding the US tax base.

The statement further adds, "Introducing the principle of a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates."

The President's framework for reforming the tax system to enhance American competitiveness are simplification of the tax code, elimination of many tax loopholes and subsidies, incentives for job creating and investment in the country and lower business tax rates at the same time broadening the tax base. In amending the tax code, the President aims to prevent companies from reaping benefits of putting profits in low-tax countries allowing the US to level the playing field against tax shelter countries and help in removing the race for corporate tax rates.

It further added, "Specifically, under the President's proposal, income earned by subsidiaries of US corporations operating abroad must be subject to a minimum rate of tax. This would stop our tax system from generously rewarding companies for moving profits offshore. Thus, foreign income deferred in a low-tax jurisdiction would be subject to immediate US taxation up to the minimum tax rate with a foreign tax credit allowed for income taxes on that income paid to the host country."

by: Bobby Castro

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