Kerry's plan on outsourcing faces mixed reviews

IDG News Service - One of the central themes in Sen. John Kerry's presidential campaign is ending tax breaks for companies that send jobs overseas. But the IT community is split on whether Kerry's plan would actually keep jobs in the U.S.

The Kerry plan, outlined online (download PDF), doesn't spell out many details, but Kerry advocates eliminating "special tax breaks" for U.S. companies with overseas subsidiaries. Under current U.S. tax law, U.S. companies with overseas operations can defer paying taxes on income at those operations until they bring the profits back into the U.S.

The Kerry campaign has criticized President George W. Bush for "encouraging" offshore outsourcing. Bush's advisers have suggested that limiting offshore outsourcing may hurt the U.S. economy in the long term.

"Right now, we've got a choice," Kerry said in a statement released in August. "We can keep on subsidizing companies who send jobs overseas, or we can reward companies who keep them here in America, where they belong."

The Kerry plan lacks details, noted Joe Tasker, senior vice president and general counsel for the Information Technology Association of America (ITAA), which has opposed most moves to limit offshore outsourcing. The ITAA sees a number of ways to help U.S. IT workers compete with workers in other nations, including an emphasis on training and opening more global markets to U.S. products.

The ITAA argues that by limiting offshore hiring, the U.S. could start a trade war in which other nations cut back on their purchasing of U.S. IT products.

"[Kerry] sees there's an incentive to move jobs offshore, and he wants to eliminate that incentive," Tasker said. "But [the Kerry plan] is really just not that clear."

The Kerry campaign didn't respond to a request for more information on the outsourcing proposal.

Profits from overseas subsidiaries of U.S. companies are currently taxed -- generally at a 35% rate -- only when the company returns those profits to the U.S. Supporters of this policy argue the profits are already taxed in the country where the subsidiary is based, and without the U.S. tax deferral, those profits would be taxed twice.

Kerry's plan seems to distinguish between U.S. companies that move jobs overseas in an attempt to reduce U.S. labor costs and those that open foreign production facilities in a foreign country when the facility serves customers in that country. Companies that locate production in a foreign country that serves that country's markets would continue to have the U.S. taxes on those facilities deferred under the Kerry plan.


Provisions in two corporate