Could We Actually Increase Offshoring of Jobs?

The current administration is in a pinch. It seems our national income is far less than our national spending rate. So we find ourselves in the unfriendly position of needing to raise money. And unfortunately, the government must raise taxes in order to raise this money.

One of the main tax targets has been large U.S. corporations. The Obama administration wants to close a $190 billion loophole law that allows U.S. corporations to shift profits to overseas subsidiaries and pay the local government taxes instead of U.S. taxes. For instance, if Microsoft shows that a bunch of it's software sales are booked though an Irish subsidiary, then Microsoft pays taxes to Ireland on that revenue (which has a much lower tax rate than we do), and effectively dodges U.S. tax rates for those sales dollars.

At first look the plan to close this tax loophole sounds like a great idea. Nobody will lose any sleep over the idea of big companies making less money, and we are all very suspicious of their ability to screw us with high priced legal teams and government lobbyists. So when the president says he wants to tax Microsoft most people say "Go right ahead!"

But wait just a minute. Microsoft has been very upfront about how it will react if this tax rule is changed. Stevel Ballmer, the CEO of Microsoft, says that such a change would encourage Microsoft to move people and jobs overseas. “It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.” (for the full Ballmer article click here)

DOH!! So we change the tax law in an effort to get more taxes and actually end up chasing jobs overseas and collecting less tax revenue?! That's not the plan! Seems to me that the cure may be more dangerous than the illness if we don't slow down and think very carefully about what we do next.

On the flip side, Ireland is all for this tax law change. So I guess you could say that we are making great strides towards improving our international reputation...