Obama proposes bringing jobs home from overseas. Would his plan work?

To achieve his goal of 'insourcing,' Obama proposes rewarding firms that create jobs in the US while imposing higher effective taxes on profits earned by overseas operations.

|
Pablo Martinez Monsivais/AP
President Barack Obama greats UAW President Bob King during a roundtable meeting on Insourcing American Jobs, on Jan. 11, in the Old Executive Office Building on the White House campus in Washington.

President Obama used a Milwaukee factory Wednesday as the venue to amplify his call for the US to create more manufacturing jobs – including by enticing companies to move jobs back to the US from overseas.

After years in which American workers faced challenging trends labeled "outsourcing" and "off-shoring," some people use the word "insourcing" to describe this goal.

The president proposed a blend of tax-code carrots and sticks. Companies would face higher effective taxes on profits earned by overseas operations, and Obama proposes using the proceeds to reward firms that create jobs in the US. Obama also outlined what appears to be a tougher stance on enforcing current trade laws against China, a policy that could aid the cause of US-based factories.

Mr. Obama won loud cheers from workers at the Master Lock plant where he spoke. But many independent economists, while applauding the general goals Obama espoused, doubt whether the policies he framed in Milwaukee would work.

“The president is absolutely right to focus on this [manufacturing issue],” says Robert Atkinson, who heads the Information Technology and Innovation Foundation, a policy think tank in Washington. But he says he's “not really enamored” of Obama's proposals.

A central problem for US manufacturers, Mr. Atkinson says, is that they are currently asked to pay higher tax rates than their overseas competitors. He argues that what's needed is an overhaul of the corporate tax system to bring rates lower, making the US a more attractive place to invest.

Obama, instead, offered proposals that create new incentives for investment at home, but would also penalize multinational manufacturers based in the US:

"No American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas," Obama said. "From now on, every multinational company should have to pay a basic minimum tax.  And every penny should go towards lowering taxes for companies that choose to stay and hire in the United States of America."

Obama cited Master Lock as an example of a nascent revival for US manufacturing. It has moved about 100 jobs, previously outsourced offshore, back to Milwaukee since the middle of 2010, according to the White House.

Some tax-policy analysts say Obama is right to seek disincentives for firms that shift jobs overseas.

The group Citizens for Tax Justice, for instance, decries a current loophole that allows American corporations to defer US taxes on their offshore profits until those profits are brought home. They pay taxes in the overseas nation. But if they don't "repatriate" the profits, they may avoid the current tax code's goal of having them pay enough US tax to make up the difference between the foreign-country and US-side tax rates.

"This ... provides an incentive for US corporations to shift operations and jobs to a lower tax country, or just use accounting gimmicks to make their US profits appear to be 'foreign' profits," a recent report by Citizens for Tax Justice said.

Other economists, however, say the US needs to tread carefully on tax policy, and that the main problem is that the US corporate tax rates exceed those in other nations.

Gary Hufbauer, at the Peterson Institute for International Economics, says in an audio commentary on the issue that when US firms invest abroad they also tend to create export demand for their products made in the US. If you try to get them to bring their jobs "home," the result may be that they lose a foothold in foreign markets, which can ultimately benefit US workers.

Currently, US corporations pay an effective tax rate of about 27 percent of profits, compared with an average of about 20 percent for many other advanced nations, Mr. Hufbauer says. If that tax-rate gap persists, and if the US cracked down on the deferral loophole, it might encourage more US firms to be bought by corporations based overseas, over time, to get around the higher tax.

Atkinson says Obama is "long overdue" in pursuing tougher enforcement of trade laws against China.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Obama proposes bringing jobs home from overseas. Would his plan work?
Read this article in
https://www.csmonitor.com/USA/Politics/2012/0215/Obama-proposes-bringing-jobs-home-from-overseas.-Would-his-plan-work
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe