SCDigest Editorial Staff
A proposed law that would have hit US companies moving production offshore with added costs will not move forward in the Senate, ending its prospects for now along a mostly but not completely party-line vote.
There was little chance of the bill (the Creating American Jobs and Ending Offshoring Act), which failed a test vote in Senate, becoming law any time soon, but a vote to move the bill forward was called by Senate Democratic leaders to force Republicans to take a position before the November mid-term elections. In the end, most Republicans plus four Democrats and Independent Joe Lieberman voted against moving the bill to the Senate floor for debate in a 53-45 vote. So votes were required to move the bill ahead.
Similar legislation had already been passed by the House of Representatives.
Democrats say current law gives tax breaks to companies closing US factories for offshore production, which is true or not true depending on how you look at it.
The bill would have changed two areas of current tax statutes. In the first case, companies are able to deduct from corporate income the costs associated with a plant closure (e.g., severance payments and other closing costs, which can often run into the millions of dollars or more per closure). The second are is law that allows US companies to defer income recognition for profits made overseas.
The US Chamber of Commerce and other business groups had vigorously opposed the bill, saying its passage would hurt the competitiveness of US businesses and in many cases subject them to double taxation.
"Limiting [offshore tax] deferral would hinder the global competitiveness of these American companies, impede U.S. economic growth, and ultimately result in the loss of jobs - both at the companies directly impacted and companies in their supply chains," Chamber of Commerce head Tom Donahue wrote to the Senate before the vote.
The issue is potentially a powerful one, as changing the tax code might in some cases change the financial equation in terms of the benefits of offshoring. A potential closure of a US factory in favor of one in China or elsewhere for which the cost benefits are marginal might move from "go" to "no go" status under such a new law.
Senator Chuck Grassley of Iowa said the bill that Senate Democrats tried to sell as having the potential to create American jobs would, in fact, “have resulted in a net decrease in American jobs.”
(Manufacturing Article - Continued Below)