Senator Sherrod Brown (D-OH) has claimed that the Tax Cuts and Jobs Act passed by Congressional Republicans has led to companies outsourcing jobs and factories overseas. He has seized on the recent announcement that GM will shutter several plants and lay off workers as proof of this claim.
Senator Brown is wrong – there is no outsourcing “coupon” or similar tax break in the TCJA.
The provision cited by Senator Brown actually makes it more difficult for companies to outsource jobs and wages.
Instead of harming American workers and families, the tax bill has grown the economy and made America a more competitive place to do business. Thanks to tax reform, wages are up, job openings are at a high, unemployment is low, business optimism is strong, and workers are seeing increased employee benefits.
The Tax Cuts and Jobs Act Discourages Outsourcing
Senator Brown has repeatedly claimed that the TCJA gives companies a 50 percent coupon off their 21 percent corporate rate when they relocate overseas. He cites the new GILTI (Global Intangible Low-Tax Income) and FDII (Foreign-Derived Intangible Income) provisions under Section 250 of the tax code.
These provisions actually make it more difficult for companies to outsource jobs and factories because they target erosion of the U.S. tax base by going after new types of income that were previously not taxed by the U.S. system.
GILTI and FDII apply a “carrot and stick” approach to the taxation of intangible income (income derived from rents, royalties etc.) that is easily allocated to low-tax jurisdictions.
GILTI is the stick – it is designed to impose taxation on low-tax IP-derived income of foreign subsidiaries. Any GILTI income is included in a company’s taxable income but with a 50 percent deduction, resulting in an effective rate of 10.5 percent.
This approach aims to incentivize companies to locate capital and profits within America, while clamping down on companies that relocate their assets overseas.
Post-TCJA, if a company chooses to relocate assets overseas, they receive a higher tax rate on their income than they would have before tax reform (10.5 percent versus zero) because of GILTI.
In fact, this so-called “outsourcing tax break” is a $112.4 billion tax increase over the ten-year window (as a whole the bill is a $1.45 trillion tax cut).
Senator Brown has stated that he wants President Trump to step in and remove the 50 percent outsourcing coupon. In reality, there is nothing to fix – GILTI is not a coupon or outsourcing benefit and actually makes it harder for companies to relocate overseas.
The U.S. Economy is Strong Because of Tax Reform
Although Senator Brown claims the GOP tax cuts are a negative for America, nothing could be further from truth.
Tax reform has made the U.S. system competitive again – the bill lowered the federal corporate tax from 35 percent (where it was the highest in the developed world) to 21 percent, a rate that puts the U.S. close to foreign competitors.
Tax reform also modernized the U.S. international tax system so that businesses will now be able compete globally and can reinvest trillions of dollars in foreign earnings into America.
Because of these policies, the U.S. was named the most competitive economy in the world earlier this year, according to the IMD World Competitiveness Center.
The economy grew by 3.5 percent in Q3 of 2018 and we are on track for the strongest annual growth in 13 years. The unemployment rate is at a near-50 year low
Small business optimism is at the highest level in 45 years, with owners reporting more investment and spending. Similarly, manufacturer optimism is at a record high over the past year, with capital investment, employment, and sales all increasing.
At least 90 percent of wage earners are seeing higher take home pay because of tax reform. Consumers are seeing lower utility bills in all 50 states and workers are seeing bonuses, 401(k) match increases, and new employee benefits.