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The Tax Credit for Outsourcing Is Fiction



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Barack Obama alleged during the debate last night that there exists a special tax credit for businesses that offshore operations. Mitt Romney, looking a little annoyed, responded that he had never heard of any such thing in his 25 years in business. Obama replied that not only did such a thing exist, but Democrats had introduced legislation to eliminate it, while the mean meany Republicans had resisted.

So, here’s the deal: Business expenses are deductible against income for tax purposes. That is it.

I’m not a tax lawyer, so this will be very general, but business income is not like personal income: Your personal income is how much money you took in last year, but business income is how much money you took in minus your business expenses. As Inc. summarizes it:

All of the basic expenses necessary to run a business are generally tax-deductible, including office rent, salaries, equipment and supplies, telephone and utility costs, legal and accounting services, professional dues, and subscriptions to business publications. . . . Some other miscellaneous expenses that may be deductible in this category include computer software, charitable contributions, repairs and improvements to business property, bank service charges, consultant fees, postage, and online services.

Debbie Stabanow, for my money one of the least impressive senators (and that is saying something), introduced a bill that says, in short: Business expenses are still deductible, unless you use incur those expenses doing things I don’t want you to do. Or to quote from the bill:

No deduction otherwise allowable under this chapter shall be allowed for any specified outsourcing expense.

In other words, if you send a letter to your lawyer, the postage is a deductible expense. If you send a letter to your offshoring consultant, the postage is not a deductible expense.

So the special outsourcing tax credit isn’t really there — it’s just regular-ol’ deductible business expenses. Rather than repealing an instance of tax favoritism, Democrats (and some Republican miscreants) propose to use the tax code to inflict punitive measures on businesses that make business decisions at odds with Washington’s political preferences.

This is not too different from the “subsidies” for “Big Oil” that Democrats are always on about. There is some oil-industry favoritism in the law (in the tax code and elsewhere) but most of those “Big Oil” handouts are wide-ranging manufacturing tax credits and similar measures intended to encourage heavy industry in the United States. As with the Stabenow bill, the campaign allegedly intent on removing these favors would in fact simply exclude certain kinds of companies from exercising benefits normally available to most other businesses. It’s basically a bill of attainder against the oil industry.

Punishing businesses for making business decisions politicians do not like is banana-republic stuff; Barack Obama and his congressional allies should be ashamed of it.

Incidentally, the amount of money that would be raised from Stabenow’s bill is about $14 million, or just a little bit more than Barack Obama’s net worth, i.e. chump change, meaning that the bill is pure symbolism.



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