Washington, D.C.
"We will end the tax breaks for companies who ship our jobs overseas, and we will give those breaks to companies who create good jobs with decent wages right here in America." In a recent campaign speech, Senator Obama indicated that as president he would make this proposal a legislative priority. Already last August, he cosponsored a bill--together with Senators Dick Durbin (Ill.) and Sherrod Brown (Ohio)--giving tax breaks to American businesses that do not move jobs to other countries.
The bill, called the Patriot Employer Act, would designate companies as "patriot employers" if they "maintain or increase the number of full-time workers in the United States relative to the number of full-time workers outside of the United States.” The bill also stipulates that to be recognized as “patriot employers” companies must pay a wage to each employee that is "not less than an amount equal to the federal poverty level"--at least $7.80 per hour. They also have to provide a pension plan, "pay at least 60 percent of each employee's health care premiums," and take a position of "neutrality in employee [union] organizing drives."
Critics claim the Act ignores the economic reality that businesses can only survive if they can afford to pay their employees what the market will bear and still make a minimal profit. If the bill forces employers to raise wages and benefits beyond what they can afford, they are likely to hire fewer workers or move to a less expensive location, or ultimately go out of business altogether.
Senator Obama explained that "patriot employers" would qualify for a one percent tax credit on their profits. To finance this tax break, U.S. companies with outsourced production facilities in foreign countries would pay the U.S. corporate tax of 35 percent on profits earned abroad, rather than the usually lower corporate tax in the subsidiaries’ host countries. It is not clear why foreign host countries would forego taxing the profits of American subsidiaries unless specific agreements against double taxation are in effect.
The Patriot Employer Act would place offshore-based competitors of U.S.-based companies at a clear disadvantage and potentially lose them market share. The sponsors of the bill apparently assume that reducing the profits of American businesses abroad will induce them to bring their operations and their jobs back home. In reality, many offshore subsidiaries produce only component parts for American-assembled end products of higher value.
While the sponsors of the Patriot Employer Act are justifiably concerned with the growing outsourcing of American jobs to lower-wage economies, it remains to be seen if a one percent tax-credit would be sufficient to keep U.S. businesses from fleeing to lower tax jurisdictions. All too often, businesses simply pass on higher taxes to consumers, in the form of higher prices, and to employees by suspending wage and benefit increases.
William Buiter and Anne Sibert, two British economists, claim that “the Patriot Employer Act seeks to transfer wealth from the truly downtrodden of the world to a limited number of favoured US workers: mainly those in once dominant manufacturing industries that have lost their global competitive edge.” Buiter and Sibert called Obama’s proposal “reactionary, populist, xenophobic and just plain silly.” “Instead of increased protectionism,” they suggested, “the United States might increase its competitiveness by sensible investments in infrastructure and education.”
It was on February 13 when Obama stopped in Janesville, Wisconsin, whose largest employer is a General Motors assembly plant, to talk about his cosponsorship of the Patriot Employer Act and explain why it benefits American workers. Seven days later, on February 20, he won the endorsement of the Teamsters Union.