For the past two decades Americans have been getting laid off because their jobs are being transferred offshore. “Advances in technology and low-cost telecommunications now mean that a computer programmer, data entry specialist, or help-desk operator answering calls for a U. S. company can work as easily from India or the Philippines as from Iowa--and save parent companies some 30 percent to 70 percent in costs” (Otterman, 2004). This poses the question should the government protect American jobs by imposing stiff penalties on companies that transfer jobs offshore by outsourcing or manufacturing.
No, stiffer taxes are not going to significantly effect the number of jobs that are being transferred off shore due to outsourcing. Instead the United States government needs to lower the average tax rate on multinational corporations and fix the loopholes that are currently being used to avoid paying these corporate taxes. For years American companies have been scrutinized for outsourcing their jobs by off shoring. Even though this has been going on for the past twenty or more years it is being brought to light even more now since our country is in a recession.
There are many reasons companies choose to outsource off shore. One of the main reasons is cost savings, many developing countries are more affordable for American companies to operate in because an employee that may cost $50 and hour in America might only cost about $5 an hour in a developing country. Companies are not just off shoring for cost benefits but also for the fact that many other countries have many educated and highly skilled workers who can perform jobs that are needed overseas. Business can also operate 24 hours a day 7 days a week by taking advantage of the offshore workers.
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When it is 6 p. m. in New York it is 6 a. m. in Singapore. Americans want that 24 hours a day 7 days a week customer service when they are having problems with things like their computer. Outsourcing offshore also makes it a lot easier for companies to sell goods and services in a global market when they are producing them there and can reach their customers more quickly and effectively. Technological possibilities are another reason companies are choosing to offshore American jobs. Since many service jobs do not require face-to-face interaction they are able to erform these jobs from wherever is needed (Popwell, 2010). Many argue that the government should protect American jobs by imposing stiff penalties on companies that transfer jobs offshore by outsourcing or manufacturing. They claim off shoring has laid off thousands of American workers who will not be able to find other work unless they learn new skills. They also claim that off shoring is a major contributor to the United States 9 percent unemployment rate (United States Department of Labor, 2011).
But they are only supporting their claims by the fact that they think companies are only off shoring for cost incentives. Where as stated before there are many other reasons companies outsource offshore and many ways to make up for the job losses. Those who oppse the government protecting American jobs with stiff penalties for off shoring recognise that yes, cost savings is a big incentive for a company to outsource off shore, but there are also many more reasons that comapanies should opperate on a global scale that out weigh the loss of jobs in America. Thea Lee, policy director for the AFL-CIO, says much of the economic data supporting the link between overseas investment and domestic job growth fails to distinguish between foreign investment used to serve market demand for U. S. goods and services and foreign investment used to buy cheaper labor abroad” (Wolverson, 2011). So when looking at the total number of American jobs that have been outsourced off shore we also have to stop and think about how many of them were for market demand to better serve us and how many of them really were outsourced because it was cheaper.
People also have to remember that companies have to try and find ways to make the both the consumer and the investors happy. Consumers want the best quality at the lowest price and the investors want to see a high profit, so to do that companies have to find the middle ground. Which means they have to find the best solution for everyone even if it means outsourcing jobs offshore because it more cost effective for the company. According to Jagdish N. Bhagwati, “employing workers at lower cost allows U. S. companies to be more efficient and productive, permitting them to create the same amount of goods with fewer resources. In turn, this lowers the price of the goods in the United States, strengthening U. S. companies and freeing workers for other tasks. The savings allows U. S. companies to stay afloat and expand in a highly competitive global market” (Otterman, 2004). Outsourcing is not always a bad, it is a change, and change is what pushes both our economy and our nation forward.
Another good point that has been made is, the average global tax rate on multinational corporations is about 27 percent, compared to 39 percent in the United States (Wolverson, 2011). Given this information it would seem that instead of penalizing our multinational corporations for increasing international trade, maybe the United States government should focus more on bring in multinational corporations from other countries. This would not only create more jobs in the untied states to compensate for the ones that are being lost overseas but also stimulate more international trade. A 2008 OECD study found that foreign direct investment increases by 3. 7 percent for every one percentage point decrease in the corporate tax rate, and that, as cross-border capital flows increase, foreign direct investment is increasingly swayed by countries' tax rules” (Wolverson, 2011). We should be focusing on how to get more multinational corporations into the United States instead of focusing on how to hold back our multinational corporations. Along with lowering the average tax rate on multinational corporations the government should also fix the loopholes that exist.
This way all multinational corporations will be taxed the same instead of some getting taxed the full 39 percent, while the others are using loopholes and hardly pay any taxes. Even in president Obama’s 2011 State of the Union address he called congress to simplify the system by getting rid of corporate loopholes so they can level the playing field and aid in the country’s competiveness and growth potential. To further support this, in an article from NationalJournal. com “many economists say that the corporate tax code is a mess and overdue for a clean-up.
The code riddled with inefficiencies, creating perverse incentives for companies to invest overseas and waste money on elaborate tax-reduction strategies. Business supporters say a overhaul could eliminate the misguided incentives, lower tax rates, and attract more capital to the U. S. Some liberal critics also support reform, saying the current system is so tangled that it doesn't even do a good job of raising revenue” (Fernholz, 2011). Corporate tax breaks cost the federal government about $1. 1 trillion annually (Wolverson, 2011).
If the government decided to really follow through with this corporate tax reform it could really help stimulate the economy and help to create new jobs help not only the 9 percent national unemployment rate go down but could also help create jobs for the people who lost their jobs due to off shoring. Overall the government should not be focusing on protecting American jobs that are being transferred offshore by outsourcing or manufacturing. Instead they should be working to close loopholes to even out the amount of taxes companies are paying. While also working to lower the average tax rate on multinational corporations to make outsourcing to the United States more desirable to multinational corporations in other countries.
- Fernholz, T. (2011, January 24). NationalJournal. com. Retrieved February 16, 2011, from Obama Team Wants Business Buy-In on Corporate Tax Reform.
- Otterman, S. (2004, February 20). TRADE: Outsourcing Jobs. Retrieved February 16, 2011, from Council on Foreign Relations: http://www. cfr. org/pakistan/trade-outsourcing-jobs/p7749
- Popwell, N. (2010, October 27). Offshore Outsourcing: The Controversy Over Moving Jobs Overseas. Retrieved February 16, 2011, from Ezine Articles: http://ezinearticles. com/? Offshore-Outsourcing:-The-Controversy-Over-Moving-Jobs-Overseas&id=5253123
- United States Department of Labor. (2011, February 4). Economic News Release. Retrieved February 16, 2011, from Bureau of Labor Statustics: http://www. bls. gov/news. release/empsit. nr0. htm
- Wolverson, R. (2011, February 11). Outsourcing Jobs and Taxes. Retrieved February 16, 2011, from Council on Foreign Relations: http://www. cfr. org/united-states/outsourcing-jobs-taxes/p21777
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