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Senate Readies Quickie Jobs Bill with Payroll Tax Cut

This kind of came out of nowhere, but the Senate will vote next week on the “Creating American Jobs and Ending Offshoring Act,” a jobs bill, financed by eliminating tax loopholes that promote outsourcing, which would cut employer-side payroll taxes paid to new hires in the US who replace employees who had been working abroad. This narrow “insourcing” bill looks designed to reward companies that create jobs in America, as well as boost electoral fortunes by drawing a contrast with Republicans.

Sam Stein has the summary of the bill:

Creating American Jobs and Ending Offshoring Act S. 3816

Incentive to Create American Jobs

To encourage businesses to create jobs in the United States, the Creating American Jobs and Ending Offshoring Act provides businesses with relief from the employer share of the Social Security payroll tax on wages paid to new U.S. employees performing services in the United States. To be eligible, businesses must certify that the U.S. employee is replacing an employee who had been performing similar duties overseas. This payroll tax relief is available for 24 months for employees hired during the three-year period beginning September 22, 2010. The Joint Committee on Taxation has not yet scored this proposal.

Disincentives to Moving American Jobs Overseas

End Subsidies for Plant Closing Costs. The Creating American Jobs and Ending Offshoring Act eliminates subsidies that U.S. taxpayers provide to firms that move facilities offshore. The bill prohibits a firm from taking any deduction, loss or credit for amounts paid in connection with reducing or ending the operation of a trade or business in the U.S. and starting or expanding a similar trade or business overseas. The bill would not, however, apply to any severance payments or costs associated with outplacement services or employee retraining provided to any employees that lose their jobs as a result of the offshoring. Firms can apply to the Treasury Secretary for relief from this rule for transactions that do not result in the loss of employment in the U.S. The Joint Committee on Taxation has not yet scored this proposal.

End Tax Break for Runaway Plants. The Creating American Jobs and Ending Offshoring Act ends the federal tax subsidy that rewards U.S. firms that move their production overseas. Under current law, U.S. companies can defer paying U.S. tax on income earned by their foreign subsidiaries until that income is brought back to the United States. This is known as “deferral.” Deferral has the effect of putting these firms at a competitive advantage over U.S. firms that hire U.S. workers to make products in the United States. The bill repeals deferral for companies that reduce or close a trade or business in the U.S. and start or expand a similar business overseas for the purpose of importing their products for sale in the United States. U.S. companies that locate facilities abroad in order to sell their products overseas are unaffected by this proposal. The Joint Committee on Taxation has not yet scored this proposal.

I can’t imagine the universe of people this would find a job is all that great, but I’m perfectly happy with killing wasteful tax credits in favor of tax credits that might create a few jobs, as long as we have tax credits. Allowing businesses to deduct the cost of moving their plants is insane. Furthermore, the bill looks tailor-made for some massive demagoguery in the elections. And I’d rather a bill that focuses on jobs rather than individual income taxes (or at least something that connects the two).

But this isn’t the kind of broad-based employee-side payroll tax holiday that many economists have recommended as a demand aggregator. Unless there are 14 million people working in call centers and factories and companies will take a temporary tax credit to ship those jobs all back to America, I’m not seeing the impact. We need a real jobs agenda.

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David Dayen

David Dayen