New Legislation Would Rein In Corporate Offshoring

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Representative Lloyd Doggett speaks during a rally led by congressional Democrats against United States President Trump's proposed tax plan outside the U.S. Capitol. 

As the president continues to extrapolate on all the jobs he says he’s saved from corporate offshoring, the GOP’s actual record on trade has prompted Democrats to target offshoring in a new bill. 

Last week, Democratic Representative Lloyd Doggett of Texas and Democratic Senator Sheldon Whitehouse of Rhode Island introduced the No Tax Breaks for Outsourcing Act and the Stop Tax Haven Abuse Act. These bills aim to close loopholes stemming from the 2017 GOP tax bill that incentivize companies to offshore their assets overseas—or at least to make it appear that their profits were earned outside the U.S. Doggett and Whitehouse introduced similar legislation last year.

The dangers these loopholes present are well known to policymakers on the left and the right. In its analysis of the tax law last year, the Congressional Budget Office warned that certain provisions, including the halved corporate tax rate for profits earned overseas and other loopholes, “may increase corporations’ incentive to locate tangible assets abroad.”

The new legislation would also make it more difficult for American companies to manipulate tax rules in order to designate themselves as foreign corporations (therefore helping to “stop tax haven abuse”), and also make it easier for authorities to find and investigate tax evasion and money laundering.

“We need to end these costly and harmful giveaways and level the playing field for businesses that grow jobs and raise wages here at home,” Doggett told Salon last week.

Like the previous legislation, the No Tax Breaks for Outsourcing Act has strong support among Democrats (with 75 original cosponsors in the House, according to Doggett’s office), as well as organizations like labor unions and progressive think tanks. While Republicans talk big about keeping jobs at home, neither piece of legislation has any GOP support. However, it is noteworthy that the bills do have support from moderate Democrats, including those who represent “red-to-blue” districts, like Representative Conor Lamb of Pennsylvania. The legislation is unlikely to go anywhere given the Republican-led Senate, but it’s still an important step to spell out Democratic priorities on taxes and trade. For too long, the platform on these issues has been a vacuum of real change outside of separating itself from the Republican standard. What would a comprehensive progressive rewrite of the tax code actually look like?

One clue, at least on the international side, might be found in a report issued last year by the Institute on Taxation and Economic Policy (ITEP). In “Understanding and Fixing the New International Corporate Tax System,” ITEP laid out priorities for a new international tax system that include eliminating the ability for companies to reincorporate as foreign entities to avoid taxes, equalizing tax rates so that offshore profits are taxed the same as domestic profits, and increasing the transparency of companies’ financial information, specifically on a country-by-country basis. The report also praised the 2018 version of Doggett and Whitehouse’s No Tax Breaks for Outsourcing Act, calling it “the most comprehensive legislation released to end offshore tax avoidance,” adding that it “would go a long way to shutting down offshore tax avoidance and restoring fairness to the tax system.”

In regard to the point of equalizing foreign and domestic tax rates, as the Prospect previously reported, there is room to focus attention on the plight of workers overseas as a result of aggressive policies that encourage companies to go offshore for cheaper labor. For example, an American company in the Philippines, whose clients are almost exclusively American multinational companies, has long tried to bust a union of Filipino call center employees. The Philippines has become a principal destination for American corporate offshoring, even though “The [labor] situation in the Philippines is really dark,” as Filipino union activist Jane Siwa told the Prospect.

Importantly, these corporate loopholes and tax breaks help the super-wealthy retain more of their wealth, and thus their influence over society. Look no further to the recent college admissions scandal to see what happens when the culture of the über-rich’s use of money to keep themselves in the bastions of power goes unchecked. Unless Democrats can gain power and pass their own tax reform, this influence is only poised to get worse.

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