The Bring Jobs Home Act Won’t

By :: July 24th, 2014

The Bring Jobs Home Act is a classic message bill. Its Democratic sponsors have no interest in making it law, they merely see it as a way to boost the party’s Senate candidates in part by forcing Republicans to vote against something that sounds like a good idea. After all, who could be against bringing jobs home?

Trouble is, this bill would do almost nothing to "bring jobs home." It combines two ineffectual ideas into a single bill, and the whole is no more than the sum of its exceedingly modest parts.

The measure aims to do two things: Reward U.S. firms with a 20 percent tax credit for relocating business units from overseas to the U.S. and punishing firms by denying a tax deduction for the cost of relocating operations from the U.S. to foreign countries. “It protects American jobs and encourages future job creation within our borders,” Senate Majority Leader Harry Reid said on Tuesday.

Actually, it wouldn’t.

The ideas in this bill, or variations on their themes, have been floating around the policy world for years and have rarely gotten traction. At first glance the measure looks a bit like an employment subsidy, and its title certainly implies that it is. But look closely, and this bill is quite different. It doesn't subsidize firms that create U.S. jobs at all. Rather, it rewards them for merely moving business units to the U.S.

In the past, lawmakers promoted tax incentives to encourage hiring as a way to help reverse economic slumps (The theory: hiring more people would increase demand which would encourage more hiring).

Such a measure was enacted during the Carter years. For an insider’s take on what happened, read Emil Sunley, who was a top Treasury official at the time. Len Burman helpfully dug out Emil’s comments in a blog back in 2009 when the Obama Administration was toying with a similar idea.(For a contrary—and more positive view—of the Carter bill, you can read another Tax Vox blog and its comments here).

But unlike that measure, this bill does not link the credit to the actual number of new jobs created in the U.S. Rather it allows firms to take a credit against such costs as permit, license, and brokerage fees, or the cost of installing equipment. Unlike the older-style jobs bills, this one does not provide tax subsidies to offset labor costs. And to qualify for the subsidy, firms must only show some increase in domestic jobs. If I read the bill correctly, one new job will do.

Presumably, a U.S. firm could move a business unit to the U.S, take the credit, and then open new production facilities in China.

For many multinationals, the credit would be largely meaningless. Those firms already pay close to a zero U.S. tax rate thanks to their ability to shift income to low-tax countries. With their U.S. tax liability already low, the credit would do almost nothing to encourage them to shift operations to the U.S.

The penalty side of this bill--disallowing deductions for the costs of moving production overseas-- would be similarly ineffective. The costs of such a move are normally trivial: Firms build new factories, they don’t hoist existing U.S. plants onto container ships and trundle them off to China.

The Joint Committee on Taxation figures the credit would add about $360 million to the deficit over 10 years, while disallowing the deduction would reduce the deficit by about $143 million over a decade—an indication of how small an impact it is likely to have on corporate behavior.

Finally, remember that this bill would do nothing whatever to stop the latest wave of corporate inversions. A U.S. firm that reincorporates as a foreign entity to reduce its taxes is changing a mailing address on some legal documents, not moving jobs. Deductible costs are trivial compared to tax savings.

Democrats have tried this bill before. A couple of years ago, Michigan senator Debbie Stabenow proposed a similar measure with White House backing. This time the sponsor is Montana’s John Walsh. But the idea has gotten no better with age.

 

14Comments

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  2. Michael Bindner  ::  4:22 am on July 25th, 2014:

    The Senate bill is an interesting statement, although I don’t know if it is aimed at the jobless or the “job creators” who have money to spend for the campaign season. I would much rather see a 20% VAT replacing at least some of personal and corporate income taxes than a 20% credit for mutli-nationals bringing jobs to America.

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    Very interesting points you have mentioned , appreciate it for posting . “These days an income is something you can’t live without–or within.” by Tom Wilson.

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