The "Outsource" Tax Rate

Readers of this blog know how little faith I have in economists. I have often considered them in a class with astrologers and alchemists. No one has ever tried to prove me wrong. With that in mind, here is an idea to solve the nation’s unemployment situation.

Once there are plenty of well paying jobs here with decent benefit packages, spending will resume and that spending will bring about more jobs, and the whole process will snowball, lifting us out of this “recession.” we are in. Simply stated, jobs are the answer. Everything else will then follow.

The creation of brand new jobs is a wonderful solution but it a slow and tedious process. It would be far easier to bring back the millions of jobs which have been outsourced to other parts of the world where labor and other costs are less than in the United States. Putting tariffs on imports would seem to be the logical solution, but that would throw a monkey wrench into our global economy and only result in retaliation from our overseas markets which supposedly spend the money here we send to them for their low-labor cost manufactured goods. Economists claim that was tried in the 30s and it did not work (Smoot-Hawley Tariff).

I propose we look at American corporations which outsource much of their manufacturing and even service functions to low-cost-labor and basically unregulated countries. Doing this contributes mightily to their bottom line, their profit, and makes their boards and stockholders happy. But it is really unpatriotic if not un-American because it keeps Americans out of work, taking away their jobs.

There has to be a way to determine what percentage of a corportation’s bottom line, its profit, is derived from outsourced operations. For example, if a corporation’s profits for the year were $100,000.000 and it were determined that 30% of that was the result of its outsourced operations, then $30,000,000 of their bottom line would be scrutinized to determine how much that portion of their profit would have been if the processes producing that amount had been conducted in the United States rather than overseas. Let’s say that profit number would have been reduced to $15,000,000.

Once these figures have been developed, the corporation would be taxed at the normal corporate tax rate for $70,000,000 of their profits developed in the United States and also be taxed at that rate for the $15,000,000 value of the profits developed from outsourced operations had they been performed in the United States. As for the remaining $15,000,000 of their bottom line, that would be taxed at a significantly higher tax rate which we will call the “outsource tax rate” and that would be a rate sufficiently, if not prohibitively, high enough to cause the corporation to bring jobs back to the United States, recognizing that taxes on outsourced profits will make outsourcing unprofitable to them.

This is a simple idea and therefore, probably something that economists would scoff at. I think it is worth a try.

JL