Is the U.S. Government Sending Jobs Overseas?

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With sky-high unemployment rates, it's no wonder that the issue of offshoring -- such as to this call center in India -- has become such a hot topic.With unemployment in some states nearing record highs, it's not hard to see why the trend of companies sending jobs overseas has become a hot issue on both sides of the aisle. The lingering high unemployment rate is arguably the biggest problem facing the Obama administration, and political pundits have argued it will be the single largest factor in the upcoming midterm elections and a threat to Democrat seats in the Senate and the House of Representatives.

As the country struggles with its huge jobless rate, overseas outsourcing is growing. Business consultants such as Everest Research Institute predict a huge increase in offshoring as companies recover from the recession. In one survey last year, more than 40% of companies said they had increased outsourcing in the previous two years.

Making it Easy to Outsource

Why are companies outsourcing work to other countries? Simply put, the current economic structure strongly encourages companies to move their jobs overseas. Using cheap overseas labor to make products and deep American pockets to buy them, companies can increase their profits on both sides of the production equation.

Add in the fact that several countries, like Ireland and the Netherlands, offer attractive tax rates, and in many cases, it doesn't even make sense for companies to bring their profits back to American banks. The U.S. corporate tax rate is among the world's highest, with a federal rate of 35% and state rates that can tack on up to 12% more. By comparison, China charges 25% and Korea's starts at 13%.

The problem is compounded by America's tax policy, which allows companies to hold off on paying American taxes until they bring those funds into the U.S. Not surprisingly, many companies park their profits in foreign banks: General Electric, for example, has $62 billion in profits sitting in offshore bank accounts.

The Carrot or the Stick?

But even though offshoring has been decried by Democrats and Republicans alike, Congress hasn't managed to discourage the practice. A bill aimed at reducing offshoring failed to garner enough support to end a Republican filibuster last month.

Senate Republicans, aided by four Democrats and Connecticut's Joe Lieberman, torpedoed the proposed law, which sought to stimulate U.S. jobs with a tempting two-year tax break for businesses that brought overseas jobs back to the country and a new tax on products imported back to the U.S. from companies that ship production out of the country. The bill also would also have made it illegal for off-shoring companies to deduct expenses that they incur when shipping jobs overseas.

Part of the reason the parties can't agree on legislation might have to do with different philosophies about how to attack the problem. While Republicans, including John McCain, have pushed for a lower corporate tax rate, they are strangely silent on the issue of taxing overseas earnings. Conversely, the Democratic party has attacked offshore banking, but has not seemed interested in offering a carrot to go with the stick of a sudden, potentially devastating, tax levy.

Dropping Wages, Dropping Workers

With continued incentives to move jobs to China and India and an apparent inability to pass legislation that would encourage investment in America, it seems likely that the situation will only get worse. That's bad news for the country's many jobless workers. While the unemployment rate is officially holding steady at 9.6%, that doesn't count underemployed workers -- those working part time while searching for full-time jobs -- and long-term discouraged workers who have given up on the job search. Adding those two groups would bring the number to around 22%.

Even the huge 22% rate doesn't tell the whole story because it doesn't include workers under the age of 25 and students in college and graduate school. The unemployment rate during the height of the Great Depression, which peaked at 25% in 1933, did include that large body of labor that's excluded from the figures today. In other words, today's official rate of 9.6% unemployment might reflect a much larger actual rate of unemployment than 1933's 25%.

And it isn't only the unemployed who may be suffering from offshoring. The trend also has had a devastating effect on the middle class. A combination of outsourcing, layoffs and freelancing has sent wages plummeting, according to Tax Analysts columnist David Cay Johnston, who reported this week that total U.S. income dropped 5%, or $313 billion, between 2007 and 2009. More than 3% of those who worked in 2008 didn't earn a penny in 2009, he reported.

A Difficult Decision

But the problem is a complicated one. After all, offshoring may also be helping to keep some U.S. companies competitive, as the U.S. Chamber of Commerce, which opposed the anti-outsourcing bill, pointed out: "Replacing a job that is based in another country with a domestic job does not stimulate economic growth or enhance the competitiveness of American worldwide companies."

For legislators and the voters they must sway, the conflict may come down to a choice of either increasing the economic growth of Americas companies or increasing the economic security of its citizens.

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18 Comments

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Leroy

Where are the laws to protect Americans? We need laws to preventt any further offshoring to make CEO's richer. Competitiveness? We don't need to "compete" at all. The cars, food, gifts and whatever else is primarily made in America by American workers and Americans have to buy them so other Americans can eat. Enough with the free trade; it doesn't help the average American. We need to strengthen the laws protecting workers and elect polititians who aren't corrupt. Nobody on here has a right to defend this immoral and anti-American act that isn't being stopped.

September 26 2011 at 1:54 PM Report abuse rate up rate down Reply
plusaf

MarketMinder's View: Simply, no. The government is allowing markets to function freely. Protectionists falsely believe keeping all jobs on US soil increases "the economic security of its citizens." But in fact, protectionist policies ensure innovation and efficiency gains stop--often hurting the people they are intended to help. I just wanted to see how many thumbs-down votes that comment could achieve... and I agree with Market Minder and NOT with this article, btw... cheers! +af

November 01 2010 at 12:55 AM Report abuse rate up rate down Reply
jkennedy806

Here's a good one, I am on unemployment Tier 1, my state has a job board, like careerbuilder or MOnster that we can use -- there was a job being offered by company out of state. When I investigated the company and I mean dug found out it was HQ was Calif. HOwever, it was a Chinese company bringing in products . What pisses me off deeply is that If I was hired as an unemployed person, the chinese company would rec'vd tax breaks for hiring an unemployed person and get money to help with my salary. The salary was no biggie a little over min. wage. But still, your using tax payers money to give to a Chinese company to hire an American. WTF???

October 27 2010 at 3:11 PM Report abuse +1 rate up rate down Reply
scottr971

When the American worker no longer has a job, then where will these companies sell their goods? Wait I know they will need to work cheap than their Chinese counter part and work for free then, it's like a dog chasing it's tail. We really need to stop and think about where it will finally end.

October 27 2010 at 2:29 PM Report abuse +1 rate up rate down Reply
kenneth

Just another example of the ineptitude of the Congress, which simply lacks the combination of common sense, intelligence, and guts, to take on a complicated problem and craft a solution which would be best for the country as a whole. The Internal Revenue Code is so complex that virtually no one can understand it, and filled with provisions which favor thinly disguised special interests. Do we have the guts to scrap the whole thing and adopt a new, comsumption-based tax? I am doubtful.

October 27 2010 at 12:08 PM Report abuse +1 rate up rate down Reply
1 reply to kenneth's comment
James Mortensen Sr.

If you think that the IRS code is complex and being handled ineptitude beauracrats just wait til they take over the implementation of the Obamacare Tax code.

July 18 2012 at 5:11 PM Report abuse rate up rate down Reply
KKiegiel

Watch Secrets of the Federal Reserve on youtube and you will see what is happening and how our political system is working. The easiest way to make up tax dollars would be to tax the overseas made products that are shipped here. This for starters would enhance establishing manufacturing plants here in the USA, to eliminate the taxation. It's about establishing a world order. Buy the local produce, it taste better. Pay a little more for locally manufactured goods and services. If you ever look at state contracts, there are line items to list if you are using non-USA labor, which is ok. I remember a documentary a couple years back on how our passports are being processed in Thailand. There should be no US government services being provided by a 3rd world country. We are in for the high unemployment situation for a long time, just be prepared. Watch the video for validation.

October 27 2010 at 11:05 AM Report abuse rate up rate down Reply
1 reply to KKiegiel's comment
scottr971

I agree!!!

October 27 2010 at 2:32 PM Report abuse rate up rate down Reply
rjturner313

I BELIEVE WHAT OUR GOVERNMEMT AND THE CORPORATIONS THEIR IN BED WITH ARE DOING TO AMERICA TODAY AND HAVE BEEN DOING FOR AT LEAST 25 TO 30 YEARS WAS ONCE CALLED TREASON.BUT MOST PEOPLE IN GOVERNMENT OR BIG BUSINESS WILL ONLY SAY IT'S NOT TREASON IT'S ONLY BUSINESS WHICH IS THE SAME THING THE MAFIA WILL TELL YOU RIGHT BEFORE THEY WHACK YOU.'' IT'S NOTHING PERSONAL AGAINST YOU IT'S JUST BUSINESS''.I DON'T BELIEVE BRINGING A NATION LIKE THE UNITIED STATES TO IT'S KNEES CAN BE CONSIDERD AS BUSINESS. WHAT DO YOU THINK?

October 27 2010 at 9:10 AM Report abuse +1 rate up rate down Reply
sfamilyent

It is in our national interest to take action to encourage domestic production growth. The U.S. Chamber of Commerce, in my opinion, has taken an anti-American position that supports replacing a domestic job with a foreign job, and reducing the competitiveness of U.S. based companies in favor of the larger multi-national corporations. The U.S. Chamber of Commerce acts in the interest of businesses, not people and not our nation - that is the job for our government; and, they are failing us. While other countries have been operating with export based growth economy agendas, which include protectionism and subsidies, we have done nothing to ensure fair international trade; or, to protect our national economic interests. This decline has been in motion for nearly 50 years. Let's fix this. We need to use both the carrot and the stick...

October 27 2010 at 8:00 AM Report abuse +1 rate up rate down Reply
sfamilyent

It is in our national interest to take action to encourage domestic production growth. The U.S. Chamber of Commerce, in my opinion, has taken an anti-American position that supports replacing a domestic job with a foreign job, and reducing the competitiveness of U.S. based companies in favor of the larger multi-national corporations. The U.S. Chamber of Commerce acts in the interest of businesses, not people and not our nation - that is the job for our government; and, they are failing us. While other countries have been operating with export based growth economy agendas, which include protectionism and subsidies, we have done nothing to ensure fair international trade; or, to protect our national economic interests. This decline has been in motion for nearly 50 years. Let's fix this. We need to use both the carrot and the stick...

October 27 2010 at 8:00 AM Report abuse rate up rate down Reply
sfamilyent

It is in our national interest to take action to encourage domestic production growth. The U.S. Chamber of Commerce, in my opinion, has taken an anti-American position that supports replacing a domestic job with a foreign job, and reducing the competitiveness of U.S. based companies in favor of the larger multi-national corporations. The U.S. Chamber of Commerce acts in the interest of businesses, not people and not our nation - that is the job for our government; and, they are failing us. While other countries have been operating with export based growth economy agendas, which include protectionism and subsidies, we have done nothing to ensure fair international trade; or, to protect our national economic interests. This decline has been in motion for nearly 50 years. Let's fix this. We need to use both the carrot and the stick...

October 27 2010 at 8:00 AM Report abuse rate up rate down Reply