Paul L. Caron

Wednesday, April 2, 2008

Clinton Unveils Tax Incentives as Part of "Insourcing Plan"

Democratic Presidential candidate Hillary Clinton yesterday unveiled an Insourcing Plan that includes a number of tax incentives designed to spur job creation:

  • Increase the R&D credit by 50% (from 20% to 30%) and increase the Alternative Simplified Credit by 67% (from 12% to 20%).
  • Create a 40% Basic Research Credit.
  • Create a 10% Start Up Research Jobs Credit.
  • Create a new $5 billion Insourcing Markets Tax Credit.
  • Close loopholes that encourage companies to ship jobs overseas:
    • Eliminate deferral provision that allows U.S. companies to defer paying U.S. taxes on income earned by their foreign subsidiaries until that income is repatriated to the U.S.
    • Close tax loopholes to ensure that companies cannot continue receiving tax benefits for locating abroad. She will disallow companies from engaging in transfer-pricing arrangements where companies avoid taxes by shifting income or assets to low-tax jurisdictions. She will eliminate incentives in the tax code (like the ability to “cross-credit”) that encourage U.S. companies to shift operations or at least profits to low-tax jurisdictions. And she will eliminate the unfair advantage that foreign insurers located in tax havens have against U.S. insurers competing for U.S. business.

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I'm no tax expert, but I guess I'd expect taxing repatriation of funds WOULD drive outsourcing for global corporations. Think of it this way:

Dell makes $1M in the global market that they want to reinvest in infrastructure. If they want to repatriate those funds to build a call center in Kansas, they pay a 35% (? not entirely sure of the rate) = $350,000...leaving them with $650k to invest in said call center. Now if they decide to open that call center in India, they can put the full $1M into it. Compound that with cheap labor, and it is difficult to expect Dell to do otherwise.

Again, I'm not a taxpro, so I could be off. Just thought it would be an interesting point.

Posted by: calvaria | Apr 3, 2008 2:56:08 PM

The tax code has very little to do with most outsourcing decisions. I think the pivotal element in most of these decisions can be traced to the tort bar. Not only litigation and jackpot settlements but huge preemptive costs such as insurance and compromised design.

Posted by: Charles | Apr 3, 2008 12:03:13 PM

How about actually paying what the market demands? When biz slows, layoffs and low wages are natural. But when it picks up, you cry and try to hire cheap foreign labor??

And yes, we need to stop subsidizing liberal arts in the US. Backet weaving, communications and art history contribute nothing, yet make a bunch of people thing that they are actually smart. Very annoying, and expensive.

Posted by: Martin | Apr 3, 2008 10:38:19 AM

Boy, I work in a research universtiy, and my daughter is an engineering prof in life sciences. Every grad student in the sciences and technical stuff is sucking wind trying to stay funded- unless, of course, you are doing global warming simulation modeling.

But Congress just spent the other day pounding all the oil executives over the price of gas, so I expect that any new credits like she proposes will have exceptions for Evil Oil and Big Pharma because they make Big Profits, regardless of how great the demand is for the products.

More nonsensical window-dressing. If they want to see jobs, free up high end cash and incentivize venture capital to take more risk over a longer time. Right now they want no risk and payoff in 3 years, which is ridiculous for any high tech new technology or disruptive business.

Posted by: Kurmudge | Apr 3, 2008 10:28:19 AM

I have been in the computer industry since 1974 and the only shortage is the one created by the companies themselves. As a project manager hiring people in the late 90's to today there has been little change. As mentioned by memomachine, companies put out these requirements that are pipedreams having nothing to do with the actual position and then complain to their congressman that they can not find anyone and so must import people. One problem with this is that many of the people imported have little in the way of actual skills but lots of so-called education. BUT, they come cheap!

Companies stopped encouraging people to get training by first cutting out the in-house route, (70’s – 80’s) and then cutting out allowing you to take courses on company time, (80’s – 90’s). Next they stopped paying for the courses (90’s-current). I teach in a University with a very high level of foreign students. They have absolutely dismal communication skills and their programming skills are of the sort: you tell me what to code and I will code it, no thought or domain knowledge, just heads down coders. My understanding from conversations with people at the University is that many that are here are supported by their governments, (tuition and board), and so are not paying for by themselves or their families.

Of the ones that I worked with who came on H1B visas, many were paid a mere pittance with the majority of the money that was billed going to the company/agency that brought them over. These people were hoping to find direct employment with a firm so they could get a reasonable wage and bring there families here.

These people were hard working, but they were no more qualified, and in cases less qualified, than the people here. Those of us with a wide ranging background will recognize the tactic as being similar to the 19th century industries and robber barons who brought in cheap labor from foreign countries to break unions or force people to accept subsistence wages. Not quite the same but it in effect it has forced our own people to either leave the field or accept positions with little pay and no future thus it becomes a self-fulfilling statement for the companies.

It is a shame.

Posted by: rich | Apr 3, 2008 9:17:04 AM

Computer ability is more about talent than "qualifications" or "skills" as listed on HR forms.

You gotta love job ads asking for "5+ years of experience" in a specific programming language or specific version of an OS that has only existed for 3, or experience in a peculiar combination of specific software and hardware. Of course, there are no "qualified applicants" that get past the drones in HR.

Advertise for people with ability and talent, allow them a few weeks to get up to speed on whatever odd flavor of technology you happen to have in your company, and you'll find that there are more than enough smart and capable people to fill IT positions.

Now if you're talking about materials science and designing chips, that's a different story, of course. OTOH, in a society with a supermajority of extraverts, one might expect to find fewer of such people than in a society where introversion is predominant, even assuming an equal distribution of abilities, education, etc., which can't be assumed. "Asians are better at math" is a statement that, when one looks at the mean test scores of millions of individuals, actually holds true.

Posted by: Barry | Apr 3, 2008 9:16:43 AM

Mamma73 "
I think shes got to make it easier for researchers from overseas to come here."

Are you nut's? There are so many imported researchers they are seriously depressing wages and job prospects of Americans. I've worked 12 years in Molecular Biology in Ohio but recently was downsized when the whole department I worked in was eliminated(My last position was Senior Research Associate). I've been looking for 9 months now and its tough. My contacts in the field tell me they are getting 30-40 applicants per position where as 5-6 years ago they would get 5 to 6 applicants. Why hire a person with a double BS and 12 years experience when you can get a foreign PhD who will work 12-16hour days without overtime(salary positions) and pay them 28,000 a year vs 42,000. I am tired of people who do not know what they are talking about expressing a stupid opinion. I've interview for 14-15 positions and over half asked if I would take a large pay cut and 4-5 even asked my references about my previous pay and if I would stay with them long term with a large pay cut. It is so bad that I'm gotten a bunch of computer certifications A+, Network+, and MCSA and will probably leave Molecular Biology research for computers (another field getting wage depressed). I say eliminate F-1, J-1, and H-1 visas.

Posted by: J Cee | Apr 3, 2008 9:10:40 AM

"My husband and I work in computer industry. It is really hard to find skilled/qualified workers."

What country do you live in? Here in the US there is a surplus of skilled/qualified workers. People have left the industry to find work in other fields at lower pay. Any America thinking of getting a Computer/Engineering degree needs his head examined.

Posted by: James | Apr 3, 2008 7:10:03 AM


"My husband and I work in computer industry. It is really hard to find skilled/qualified workers. I have heard that the same problem exists in research, but I could be wrong."

That's nonsense. I also work in the computer industry, since 1978, and there's not much of a shortage of qualified people. What there is however are companies that want every possible bit of technology experience, even if it won't be at all applicable in the listed job, for low money.

Posted by: memomachine | Apr 3, 2008 6:56:29 AM

@ former belgian:

You can't blame young adults for following the money. The guy promoting the drugs for a major pharm company makes more than the guy developing them.

Posted by: calvaria | Apr 3, 2008 6:50:59 AM

Re: not enough American researchers:

The streets are paved with graduates in liberal arts that can never hope to pay off their study loans (and now even becoming a bookstore clerk is getting iffy, as B&N and Borders are both in trouble), yet there is a shortage in graduates in majors that actually require you to use your brain rather than to regurgitate post-everything pablum. I think both dumbed-down education and a culture that plays up feelgoodism rather than serious mental effort are to blame.

If at the science and engineering department of some research universities you'd remove from the grad student and postdoc population the foreign students (F-1, J-1, and H-1 visas), Asian and Indian Americans, and American Jews (and even those are slacking off), you'd have a fraction of the contingent left. It's enough to make a grown man weep.

Posted by: Former Belgian | Apr 3, 2008 6:29:49 AM

The companies most likely to take advantage of these tax credits are probably the eeevil oil and pharm companies.

Posted by: 2klbofun | Apr 3, 2008 6:28:22 AM

I distinctly recall Bill, as a candidate, promising to change/reform Section 482, and I think he also talked about the rules on repatriation of foreign earnings. So this seems like yadda yadda yaddda. (On the bright side, I don't think I've heard Hillary promise on this go-round to move the U.S. embassy from Tel Aviv to Jerusalem, so maybe phony political promises do change over time, however glacially.)

Posted by: y81 | Apr 3, 2008 6:12:54 AM

like closing the barn door after the horse is gone

Posted by: langley | Apr 3, 2008 6:06:55 AM

I think shes got to make it easier for researchers from overseas to come here.

My husband and I work in computer industry. It is really hard to find skilled/qualified workers. I have heard that the same problem exists in research, but I could be wrong.

Posted by: Mama73 | Apr 3, 2008 5:35:12 AM

I'm not sure if these will help much. I have tried to use the R&D tax credit for my small business, but the accounting requirements were so onerous I just gave up. However, I'm impressed that Hilary at least has some specific ideas. I haven't heard many specifics from Obama.

Posted by: Doug Crice | Apr 3, 2008 5:21:38 AM

So TP,

What is your opinion?

Posted by: M. Simon | Apr 3, 2008 5:15:48 AM