Will Trump tax plan lead to more offshoring?

Trump, outsourcing

Tax plans initiated by president Donald Trump (pictured, right) may lead to an increase in offshoring in the US, according to a debate reported in the Washington Examiner.

The headline emotively suggests offshoring could “worsen”. Even without applying a value judgement (one country’s job loss due to an offshoring action is another country’s gain, surely, so we aim to remain neutral) the debate is worth having.

The issue is that Senator Sherrod Brown, a Democrat, believes that the new Tax Cuts and Jobs Act will lead to more jobs being offshored. Sen. Rob Portman, a Republican, disagreed. Both are Senators in Ohio.

Brown’s problem is that the Act provides for companies earning overseas and paying tax in overseas territories paying no further tax when their profits are repatriated to the US. Brown’s view is that it would disincentivise the move overseas by bringing corporate tax down to 20% while it is now 35%.

In our view there is some truth in both points of view. At the moment, for example, there is a lot of controversy in the UK over whether some of the Internet giants (as well as some of the giant coffee chains, for example), pay all the tax they should. If they were subsequently excused US tax for any income they brought into the country, they could have a powerful reason to ensure they’d set up shop elsewhere.

On the other hand a 35% corporation tax is high. Maybe – just maybe – both sides could do better by listening to whether the others have a point and find some compromise that addresses both concerns? Too radical..?

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