As the Obama campaign targets Mitt Romney’s record at Bain Capital, political ads and the commentators who follow them have zeroed in once again on the issue of outsourcing. Senate Democrats rallied to the cause proposing the “Bring Jobs Home Act” on July 9, only to see it die by filibuster last week. This bill had many flaws, but its biggest mistake was opposing the global growth of American companies. Both economic sense and basic decency suggest that our policies should encourage more employment in the United States.
Yet we should never discourage our companies from bringing jobs and knowledge to the world’s poorer places. The Bring Jobs Home Act would have had just that effect.
The need to encourage domestic employment is obvious: Forty-two percent of unemployed workers — 5.4 million Americans — have been out of work for more than six months, and millions more have left the labor force altogether. They need help. Meanwhile, the federal government has tools at its disposal to ease their suffering. Extending and even expanding the payroll tax holiday reduces the costs of hiring more workers and increases the incentive for companies to create jobs.
In contrast, the Bring Jobs Home Act would have created an “insourcing expense credit” equal to one-fifth of expenses related to shutting down a business overseas and re-establishing it in the United States. If enacted, this measure would have joined the pantheon of awful, politically motivated tax credits, like the ethanol tax credit — now defunct, blessedly — that was brought to us by the corn states.
Good tax policy targets easily measurable actions. But it’s hard to tell when a business unit is being relocated and when, instead, some old operation is being dismantled and replaced by a substantially different operation. Corporations constantly move in and out of different lines of business in places around the world. The tax credit would have meant that taxpayers could pay for 20 percent of the costs of dismantling failed foreign units and setting up new but only vaguely related units in the United States.
The credit would have created bizarre corporate incentives. Imagine a company that’s deciding between establishing a factory costing $1 million in Honduras and establishing a $10 million factory in Massachusetts. The greater productivity here might well offset the higher costs.
But under the Bring Jobs Home Act, a smart company would open first in Honduras, then shut down and then relocate to the Bay State. The firm would get $2 million in tax credits, which would more than offset the cost of the Honduran operation. The tax code would encourage businesses to start a foreign operation first — by subsidizing the cost of later switching to the United States.
The act would provide a credit even for fully automated factories. But why should we provide tax credits for units that employ nobody?
At first glance, the other half of the Bring Jobs Home Act might seem more sensible. Under current law, companies get a tax deduction for moving expenses; the proposed act would eliminate that deduction when a company moves a US operation overseas.
In practice, though, this proposal is another invitation for corporate obfuscation, since it is easy to present plant relocations as the closing and opening of two different operations.
The deeper point is that globalization does far more good — for the United States as well as for emerging economies — than it causes pain. We should want US corporations to employ people throughout the world, because it is also a good thing when people in Indonesia or Africa have jobs. We should want American ideas to be turned into substance everywhere. We should want American consumers to pay lower prices. We should never bribe businesses to shut down operations abroad, because there is no fixed sum of jobs. Cheaper production costs in China means more American jobs in Silicon Valley.
We surely haven’t heard the last from legislation like the Bring Jobs Home Act. Yet the world’s economy is not a war of us against them; it is a fight to improve everyone’s lives. The government should encourage domestic employment, but never discourage or vilify the global aspirations of our entrepreneurs.